CIR V. WESTERN PACIFIC CORP, G.R. NO 18804 (1965)FACTS: On March 2, 1959, respondent Western Pacific Corp was assessed deficiency income tax for the year 1953. The assessment was brought about by the disallowance listed in respondent’s return as bad debts

1. The assessment was received by respondent on the same date (March 2, 1959).

2. On March 5, 1959, CIR wrote a demand letter with the final breakdown of the assessment.

3. However, on June 29, 1959, Western Pacific Corp requested for non-assessment, claiming that the claim had prescribed and that said items should be considered as allowable deductions

4. On July 30, 1959, CIR denied the request and demanded payment of the same within 30 days from receipt of demand

5. Respondent corporation, on September 19, 1959, requested that it be allowed until September 25 to submit its formal objections to the assessment. The formal objections submitted by Western Pacific were identical to its former objections and as such, CIR denied the request.

6. The CIR, then, sent on October 28, 1959 a letter demanding payment within 10 days

7. On appeal, CA absolved the respondent from the assessment however it ruled out that the assessment letter dated March 2, 1959 was within 5-year prescriptive period

ISSUE: WON the assessment had prescribed

HELD: No. February 28, 1959 fell on a Saturday. Pursuant to Republic Act No. 1880, as, implemented by Executive Order No. 25, effective July 1, 1959, all bureaus and offices of the government, except schools, court, hospitals and health clinics, hold office only five days a week or from Monday to Friday. Saturday and Sunday, are constituted public holidays or days of exemption from labor or work as far as government offices, including that of respondent Commissioner, are concerned. The offices and bureaus concerned are officially closed on those days. So that on February 28, 1959 and March 1, 1959, which were Saturday and Sunday, respectively, the office of respondent was officially closed. And where the last day for doing an act required by law falls on a holiday, the act may be done on the next succeeding business day. (Section 31, Revised Administrative Code.) Similarly, in computing any period of

time prescribed by statute, the day of the act after which the designated period of time begins to run is not included. But the last day of the period so computed is to be included, unless it is a Sunday or a legal holiday, in which event the time shall run until the end of the next day which is neither a Sunday or a holiday (Section 1, Rule 28, Rules of Court). Consequently, since February 28, 1959 was a Saturday and the next day, March 1, 1959, a Sunday, respondent had until the next succeeding business day, March 2, 1959, Monday, within which to issue the deficiency assessment. The assessment in question having been issued on March 2, 1959, it was, therefore, seasonably made.

However, contrary to the ruling of the CTA, the assessment made by the Commissioner should be maintained, for the simple reason that when the petition for review was brought to the CTA by the respondent corporation, the said Court no longer had jurisdiction to entertain the same. The assessment had long become final. A petition for review should be presented, within the reglementary period, as provided for in Section 11, Republic Act No. 1125, which is "thirty (30) days from receipt of the assessment." The thirty (30) day period is jurisdictional.

CAB: The assessment was received by the respondent corporation on March 2, 1959. It was only on June 29, 1959, when said corporation formally assailed the assessment, on the grounds of prescription in making the assessment and the impropriety of the disallowance of the listed deductions. From March 3 to June 29, 1959, manifestly more than thirty (30) days had lapsed and the assessment became final, executory and demandable.

CIR V. PHOENIX ASSURANCE CO, G.R. NO L-19127 (1965)FACTS: Phoenix Assurance is a foreign insurance company organized under the laws of Great Britain, is licensed to do business in the Philippines.

1. Through its head office, it entered in London into worldwide reinsurance treaties with various foreign insurance companies.

2. It agree to cede a portion of premiums received on original insurances underwritten by its head office, subsidiaries, and branch offices throughout the world, in consideration for assumption by the foreign insurance companies of an equivalent portion of the liability from such original insurances.

3. Pursuant to such reinsurance treaties, Phoenix Assurance Co., Ltd., ceded portions of the premiums it earned from its underwriting business in the Philippines on the years 1952 to 1954.

4. Upon which the Commissioner of Internal Revenue, by letter of May 6, 1958, assessed the withholding tax for each year from 1952-1954.

5. On April 1, 1951, Phoenix Assurance Co., Ltd. filed its Philippine income tax return for 1950, claiming therein, among others, a deduction of P37,147.04 as net addition to marine insurance reserve equivalent to 40% of the gross marine insurance premiums received during the year. 

a.  The Commissioner of Internal Revenue disallowed P11,772.57 of such claim for deduction and subsequently assessed against Phoenix Assurance Co., Ltd. the sum of P1,884.00 as deficiency income tax. 

b.  The Commissioner assumed that "ninety and third, days are approximately the length of time required before shipments reach their destination or before claims are received by the insurance companies."

6. On April 1, 1953, Phoenix Assurance Co., Ltd. filed its Philippine income tax return for 1952, declaring therein a deduction from gross income of P35,912.25 as part of the head office expenses incurred for its Philippine business, computed at 5% on its gross Philippine income.

7. On August 30, 1955 it amended its income tax return for 1952 by excluding from its gross income the amount of P316,526.75 representing reinsurance premiums ceded to foreign reinsurers and further eliminating deductions corresponding to the coded premiums. 

8. The Commissioner of Internal Revenue disallowed P15,826.35 of the claimed deduction for head office expenses and assessed a deficiency tax of P5,667.00 on July 24, 1958.

9. On April 30, 1954, Phoenix Assurance Co., Ltd. filed its Philippine income tax return for 1953.. 

10. On August 30, 1955 it amended its 1953 income tax return. 

11. To avoid the prescriptive period provided for in Section 306 of the Tax Code, it filed a petition for review on April 11, 1956 in the Court of Tax Appeals praying for such refund. After verification of the amended income tax return the Commissioner of Internal Revenue disallowed P12,304.10 of the deduction representing head office expenses allocable to Philippine business thereby reducing the refundable amount to P20,180.00.

12. On April 29, 1955, Phoenix Assurance Co., Ltd. filed its Philippine income tax return for 1954.

13. On August 1, 1958 the Bureau of Internal Revenue released the for deficiency income tax for the years 1952 and 1954 against Phoenix Assurance Co., Ltd.

a. The above assessment resulted from the disallowance of a portion of the deduction claimed by Phoenix Assurance Co., Ltd. as head office expenses allocable to its business in the Philippines fixed by the Commissioner at 5% of the net Philippine income instead of 5% of the gross Philippine income as claimed in the returns.

b. Phoenix Assurance Co., Ltd. protested against the aforesaid assessments for withholding tax and deficiency income tax. However, the Commissioner of Internal Revenue denied such protest.

14. Subsequently, Phoenix Assurance Co., Ltd. appealed to the Court of Tax Appeals.

15. In a decision dated February 14, 1962, the Court of Tax Appeals allowed in full the decision claimed by Phoenix Assurance Co., Ltd. for 1950 as net addition to marine insurance reserve; determined the allowable head office expenses allocable to Philippine business to be 5% of the net income in the Philippines; declared the right of the Commissioner of Internal Revenue to assess deficiency income tax for 1952 to have prescribed; absolved Phoenix Assurance Co., Ltd. from payment of the statutory penalties for non-filing of withholding tax return.

ISSUE: WON the right of CIR to assess the deficiency income tax for 1952 has already prescribed

HELD: NO.

Phoenix Assurance Co., Ltd. filed its income tax return for 1952 on April 1, 1953 showing a loss of P199,583.93. It amended said return on August 30, 1955 reporting a tax liability of P2,502.00. On July 24, 1958, after examination of the amended return, the Commissioner of Internal Revenue assessed deficiency income tax in the sum of P5,667.00.

The Court of Tax Appeals found the right of the Commissioner of Internal Revenue barred by prescription, the same having been exercised more than five years from the date the original return was filed.

On the other hand, the Commissioner of Internal Revenue insists that his right to issue the assessment has not prescribed inasmuch as the same was availed of before the 5-year period provided for in Section 331 of the Tax Code expired, counting the running of the period from August 30, 1955, the date when the amended return was filed.

Should the running of the prescriptive period commence from the filing of the original or amended return? Prescriptive period shall commence from the filing of the AMENDED RETURN.The Court of Tax Appeals that the original return was a complete return containing "information on various items of income and deduction from which respondent may intelligently compute and determine the tax liability of petitioner, hence, the prescriptive period should be counted from the filing of said original return.THE SC RULED IN FAVOR OF THE CIR: The changes and alterations embodied in the amended income tax return substantially MODIFIED the original return.

Considering that the deficiency assessment was based on the amended return which, as aforestated, is substantially different from the original return, the period of limitation of the right to issue the same should be counted from the filing of the amended income tax return. From August 30, 1955, when the amended return was filed, to July 24, 1958, when the deficiency assessment was issued, less than five years elapsed. The right of the Commissioner to assess the deficiency tax on such amended return has not prescribed.

To strengthen our opinion, we believe that to hold otherwise, we would be paving the way for taxpayers to evade the payment of taxes by simply reporting in their original return heavy losses and amending the same more than five years later when the Commissioner of Internal Revenue has lost his authority to assess the proper tax thereunder. The object of the Tax Code is to impose taxes for the needs of the Government, not to enhance tax avoidance to its prejudice.

BUTUAN SAWMILL INC V. CTA, G.R. NO L-20601 (1966)FACTS: Butuan Sawmill, Inc. (BSI) sold logs to Japanese firms at prices FOB Agusan. The FOB feature of the sales indicated that the parties intended the title to pass to the buyer upon delivery of the logs in Agusan on board the vessels that took the goods to Japan. The sales, being domestic or local, are subject to sales tax under Sec. 186 of the Tax Code as amended.

1. 2. Upon investigation by the BIR, it was ascertained that no sales tax return was filed and neither did BSI pay the corresponding sales tax. For the period Jan. 31, 1951 to June 8, 1953, the CIR assessed initially assessed BSI the amount of P40,004.01 but as a result of reinvestigation, the amount was reduced to P38,917.74, as deficiency sales tax and surcharge due on its sales of logs to the Japanese buyers.

2. The lower court held that the amended assessment of the sales tax and surcharge were domestic or local sales and therefore subject to sales tax and that the assessment thereof was made well within the ten year period prescribed by Sec. 332(a) of the same Code since petitioners herein omitted to file its sales tax returns for the years 1951-53, and this omission was discovered only on Sept. 17.1957.

3. It is clear that the said export sales had been consummated in the Philippines and hence, subject to sales tax. Petitioner allege that the filing of its income tax return, wherein the proceeds of the disputed sales were declared, is substantial compliance with the requirements of filing a sales tax return, and if there should be deemed a return filed, Sec. 331 and not Sec. 332(a) of the Tax Code providing for a five year prescriptive period within which to make an assessment and collection of the tax in question from the time the return was deemed filed, should be applied to the case at bar.

4. Since petitioner filed its income tax returns for the years 1951, 1952 and 1953, and the assessment was made in 1957 only it further contends that the assessment of the sales tax corresponding to the years 1951 and 1952 had already prescribed for having been made outside the five year period prescribed in Sec. 331 of the Tax Code and should, therefore, be deducted from the assessment of the deficiency sales tax made by the BIR.

ISSUE: WON the assessment was made within the prescriptive period provided by the law.

HELD: Yes.1. An income tax return cannot be considered as a

return for compensating tax for purposes of computing the period of prescription under Sec. 331 of the Tax Code and that the taxpayer must file a return for the particular tax required by law in order to avail himself of the benefits of Sec. 331 of the Tax Code; otherwise, if he does not file a return, an assessment may be made within the time stated in Sec. 332(a) of the same Code.

2. It is undisputed that petitioner failed to file a return for the disputed sales corresponding to the years 1951, 1952 and 1953, and this omission was discovered only on September 17, 1957, and that under Section 332(a) of the Tax Code

assessment thereof may be made within ten (10) years from and after the discovery of the omission to file the return, it is evident that the lower court correctly held that the assessment and collection of the sales tax in question has not yet prescribed.

BISAYA LAND TRANSPORATION CO INC V. CIR, 105 PHIL 1338 (1960)DOCTRINE: In order that the filing of a return may serve as the starting point of the period for the making of an assessment, the return must be as substantive complete as to include the needed details on which the full assessment may be made, and appellants have not shown that such was the nature of the return they would infer had been filed by the corporation.

When there is no provision in the law requiring the filing of return but the tax is such that its amount cannot be ascertained without the date that is pertinent thereto, the Commissioner may, by appropriate regulations, require the filing of the necessary returns. In any event, with or without such regulations, it is to the interest of the taxpayer to file said return if he wishes to avail himself of the benefits of the three-year prescriptive period. If this notwithstanding, he does not file return at all, then an assessment may be made at anytime within the ten-year prescriptive period.

FACTS: BLTC acquired equipment from US Commercial Co. which it used in the operation of its buses without paying the corresponding taxes.

1. The revenue agents who investigated its books discovered that its gross receipts of the transportation business from 1946-1951 were not declared for taxation. And from 1945-1952, petitioner issued freight receipts but the corresponding documentary stamps were not affixed; deficiency additional tax was also determined.

2. CIR assessed and demanded P4,949.91consisting of 1) compensating tax, 2) common carrier’s percentage tax, 3) documentary stamp tax, and 4) additional residence tax.

3. January 11, 1955, BLTC filed a petition for review with the CTA which upheld the assessment. But ruled that the deficiency common carrier’s percentage tax for 1946, the 1st quarter of 1947, and the additional residence tax of 1947 were barred by the statute of limitations. Both parties appealed.

4. Petitioner alleged that CTA erred in not holding that the compensating and residence tax have also prescribed because the period of prescription should be computed from the filing of its income tax returns. And that the compensating, documentary stamp, and common carrier’ percentage tax were not chargeable.

ISSUE: Has the assessment made by the CIR been barred by Statute of Limitations?

HELD: No.

The income tax returns were not introduced in evidence, therefore, there was no means to determine what data were included to apprise the BIR that the company should pay the compensating tax.

When there is no provision in the law requiring the filing of return but the tax is such that its amount cannot be ascertained without the date that is pertinent thereto, the Commissioner may, by appropriate regulations, require the filing of the necessary returns. In any event, with or without such regulations, it is to the interest of the taxpayer to file said return if he wishes to avail himself of the benefits of the three-year prescriptive period. If this notwithstanding, he does not file

return at all, then an assessment may be made at anytime within the ten-year prescriptive period.

TUPAZ V. HON ULEP, G.R. NO 12777 (1999)DOCTRINE: By its nature, the tax violation can only be committed after service of notice and demand for payment of the deficiency taxes upon the tax payer.  Hence, it cannot be said that the offense been committed as early as 1980 upon filing of the income tax return.  FACTS: State Prosecutor filed with the Metropolitan Trial Court (MeTC), Quezon City an information against herein petitioner Petronila C. Tupaz and her late husband, Jose J. Tupaz, Jr., as corporate officers of El Oro Engravers Corporation for nonpayment of deficiency in corporate income tax for the year 1979 but was later dismissed and denied upon reconsideration. Subsequently, the same prosecutor filed two (2) informations before Regional Trial Court (RTC), for the same alleged non-payment of deficiency of corporate income tax for the year 1979, one was raffled to Branch 105 while the other to Branch 86.  Respondent Judge Ulep issued an order directing the prosecution to withdraw the information in Branch 86 after discovering that said information was identical to that filed with Branch 105.  The prosecutor withdrew the information but later on filed a motion to reinstate the same, stating that the motion to withdraw information was made through palpable mistake, and the result of excusable

neglect—to which the respondent Judge granted the motion over the objections of the petitioner.  Petitioner files this petition assailing that respondent Judge committed a grave abuse of discretion in reinstating the information because the offense has prescribed and exposed her to double jeopardy.  Petitioner argues that while Section 318 and 319 of the National Internal Revenue Code (NIRC) of 1997 provide a five (5) year period of limitation for the assessment and collection of internal revenue taxes, Batas Pambansa Blg. 700 (enacted on February 22, 1984), amended the two (2) sections and reduced the period to three (3) years.  As provided under B.P. Blg. 700, the Bureau of Internal Revenue (BIR) has three (3) years to assess the tax liability, counted from the last day of filing the return or from the date the return is filed, whichever comes later. Since the tax return was filed in April 1980, the assessment made on July 1984 was beyond the three (3) year prescriptive period. ISSUES:

1. Whether or not the offense has prescribed2. Whether or not the reinstatement of the criminal

information has exposed petitioner to double jeopardy 

HELD: As to the first issue, the Supreme Court ruled in the negative.  The shortened period of three (3) years prescribed under B.P. Blg. 700 is not applicable to petitioner.  B.P. Blg. 700 specifically states that the shortened period of three years shall apply to assessments and collections of internal revenue beginning taxable year 1984.  The deficiency income tax under consideration is for taxable year 1979.  Thus, the period of assessment is still five (5) years, under the old law.  The income tax return was filed in April 1980.  Hence, the July 16, 1984 tax assessment was issued within the prescribed period of five (5) years, from the last day of filing the return, or from the date the returns is filed, whichever comes later. Neither is there prescription for the prescription of criminal action by the BIR on June 8, 1989. Petitioner was charged with failure to pay deficiency income tax after repeated demands by the taxing authority. In Lim, Sr. v. Court of Appeals, we stated that by its nature the violation could only be committed after service of notice and demand for payment of the deficiency taxes upon the taxpayer. Hence, it cannot be said that the offense has been committed as early as 1980, upon filing of the income tax return. This is so because prior to the finality of the assessment, the

taxpayer has not committed any violation for nonpayment of the tax. The offense was committed only after the finality of the assessment coupled with taxpayer's willful refusal to pay the taxes within the allotted period. In this case, when the notice of assessment was issued on July 16, 1984, the taxpayer still had thirty (30) days from receipt thereof to protest or question the assessment. Otherwise, the assessment would become final and unappealable.  As he did not protest, the assessment became final and unappealable on August 16, 1984. Consequently, when the complaint for preliminary investigation was filed with the Department of Justice on June 8, 1989, the criminal action was instituted within the five (5) year prescriptive period.

On the second issue, the Supreme Court ruled on the affirmative. The reinstatement of the information would expose her to double jeopardy. An accused is placed in double jeopardy if he is again tried for an offense for which he has been convicted, acquitted or in another manner in which the indictment against him was dismissed without his consent. In the instant case, there was a valid complaint filed against petitioner to which she pleaded not guilty. The court dismissed the case at the instance of the prosecution, without asking for accused-petitioner's consent. This consent cannot be implied or presumed.  Such consent must be expressed as to have no doubt as to the accused's conformity.  As petitioner's consent was not expressly given, the dismissal of the case must be regarded as final and with prejudice to the re-filing of the case.  Consequently, the trial court committed grave abuse of discretion in reinstating the information against petitioner in violation of her constitutionally protected right against double jeopardy.

AZNAR V. CIR. 58 SCRA 519Matias H. Aznar who died on May 18, 1958, predecessor in interest of herein petitioner, during his lifetime as a resident of Cebu City, filed his income tax returns on the cash and disbursement basis.

B.I.R. Examiner Honorio Guerrero ascertain the taxpayer's true income and discovered that from 1946 to 1951, his net worth had increased every year, which increases in net worth was very much more than the income reported during 1946-1951

Based on the above findings of Examiner Guerrero, respondent Commissioner, in his letter dated November 28, 1952, notified the taxpayer (Matias H. Aznar) of the assessed tax delinquency.

CIR, thru the City Treasurer of Cebu, placed the properties of Matias H. Aznar under distraint and levy to secure payment of the deficiency income tax in question. Aznar filed his petition for review of the case with the Court of Tax Appeals..

Court of Tax Appeals - the lower court concluded that the tax liability of the late Matias H. Aznar for the year 1946 to 1951, inclusive should be P227,788.64 minus P96.87 representing the tax credit for 1945, or P227,691.77

ISSUE/HELD: Petitioner's contention is that the provision of law applicable to this case is the period of five years limitation upon assessment and collection from the filing of the

returns provided for in See. 331 of the National Internal Revenue Code. He argues that since the 1946 income tax return could be presumed filed before March 1, 1947 and the notice of final and last assessment was received by the taxpayer on March 2, 1955, a period of about 8 years had elapsed and the five year period provided by law (Sec. 331 of the National Internal Revenue Code) had already expired. The same argument is advanced on the taxpayer's return for 1947, which was filed on March 1, 1948, and the return for 1948, which was filed on February 28, 1949.

Respondents, on the other hand, are of the firm belief that regarding the prescriptive period for assessment of tax returns, Section 332 of the National Internal Revenue Code should apply because, as in this case, "(a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud or omission" (Sec. 332 (a) of the NIRC).

We believe that the proper and reasonable interpretation of said provision should be that in the three different cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the (1) falsity, (2) fraud, (3) omission.

Our stand that the law should be interpreted to mean a separation of the three different situations of false return, fraudulent return with intent to evade tax, and failure to file a return is strengthened immeasurably by the last portion of the provision which segregates the situations into three different classes, namely "falsity", "fraud" and "omission". That there is a difference between "false return" and "fraudulent return" cannot be denied. While the first merely implies deviation from the truth, whether intentional or not, the second implies intentional or deceitful entry with intent to evade the taxes due.

The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the NIRC should be applicable to normal circumstances, but whenever the

government is placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to false returns, fraudulent return intended to evade payment of tax or failure to file returns, the period of ten years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced. There being undoubtedly false tax returns in this case, We affirm the conclusion of the respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years within which to assess petitioner's tax liability had not expired at the time said assessment was made.

The lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes was based merely on a presumption and not on evidence establishing a willful filing of false and fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by the law. It must amount to intentional wrong-doing with the sole object of avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent, and if both petitioner and respondent Commissioner of Internal Revenue committed mistakes in making entries in the returns and in the assessment, respectively, under the inventory method of determining tax liability, it would be unfair to treat the mistakes of the petitioner as tainted with fraud and those of the respondent as made in good faith.

We conclude that the 50% surcharge as fraud penalty authorized under Section 72 of the Tax Code should not be imposed, but eliminated from the income tax deficiency for each year from 1946 to 1951, inclusive.

WHEREFORE, the decision of the Court of Tax Appeals is modified in so far as the imposition of the 50% fraud penalty is concerned, and affirmed in all other respects. The petitioner is ordered to pay to the Commissioner of Internal Revenue, or his duly authorized representative, the sum of P151,762.23, representing deficiency income taxes for the years 1946 to 1951, inclusive, within 30 days from the date this decision becomes final. If the said amount is not

paid within said period, there shall be added to the unpaid amount the surcharge of 5%, plus interest at the rate of 12% per annum from the date of delinquency to the date of payment, in accordance with Section 51 of the National Internal Revenue Code.

REPUBLIC V. LIM DE YU, 10 SCRA 738 (1964)FACTS: Respondent Lim de Yu filed her yearly income tax returns from 1948 through 1953. BIR assed the taxes due thereon and respondent paid them accordingly

1. On July 17, 1956, BIR assessed respondent deficiency income tax for the years 1945 to 1953.

2. Lim de Yu protested the assessment and requested a reinvestigation.

3. On August 30, 1956, respondent signed a “waiver” of the statute of limitations under NIRC as a condition to the reinvestigation requested.

4. Thereafter, on July 18, 1958, BIR issued respondent income tax notices for the year 1948 to 1953 amounting to P35,379.63. The last assessment included the basic deficiency income tax and 50% surcharge

5. Petitioner claims that the lower court erred in ruling that (1) the deficiency income taxes due from Lim for the years 1049, 1949 and 1956 were not assessed on tine; and (2) in dismissing the case, CIR’s right to collect had already prescribed. Petitioner maintains that since the respondent filed false or fraudulent returns (the annual net income reported in the returns were much less than what was computed by BIR), under Sec 332(a) NIRC, BIR had 10 years from the date of the discovery of the fraud or falsity, i.e. May 25, 1955, to assess the taxes or file a collection suit.

ISSUE: WON CIR’s right to collect based on the assessment had already prescribed

HELD: As to the years 1948 to 1950, it had already prescribed.

Fraud must not only be alleged in the complaint, it should also be established. It appears that BIR was not sure as to the amounts of respondent’s net income since it arrived at different computations on 3 different occasions. Fraud not

having been proven, the period of limitation for assessment was five years from the filing of the return (Sec 331). The right to assess or collected for the years 1948 to 1950 had already prescribed when BIR issued the deficiency tax assessment on July 17, 1956.The tax years 1948 to 1950 cannot be deemed included in the “waiver of the statute of limitations under the NIRC” executed by the respondent on August 30, 1956. The 5-year period assessment, counted from the date the return is filed, may be extended upon the agreement of the CIR and the taxpayer, but such agreement must be made before the expiration of the original period.

However, the waiver validly covers the tax years 1951 and 1952, since the 5-year period had not yet elapsed when the said waiver was executed. With respect to the tax year 1953, the waiver was not necessary because the assessment was within the original 5-year period provided by law (July 18, 1958).

Respondent’s theory that collection could be made only up to the end of the period of extension stated in the waiver (December 31, 1958) is without merit. Assessment and collection are different. Thus, although under the waiver Lim consented to the “assessment and collection” if not made later than December 31, 1958, such expiration must be deemed to refer only to the extension of the assessment period. Insofar as collection is concerned, the period does not apply because otherwise the effect of the waiver would be to shorten the legal period for that purpose. As such, BIR had within 5 years from 1958 within which to file his action, which was actually filed in 1959.

Hence, respondent is liable to pay the deficiency income taxes due for the years 1951, 1952 and 1953 plus 5% surcharge and 1% monthly interest until full satisfaction.

BASILAN ESTATES INC V. CIR, G.R. NO L-22492 (1967)FACTS: A Philippine corporation engaged in the coconut industry, Basilan Estates, Inc., with principal offices in Basilan City, filed on March 24, 1954 its income tax returns for 1953 and paid an income tax of P8,028. 

1. On February 26, 1959, the Commissioner of Internal Revenue, per examiners' report of February 19, 1959, assessed Basilan Estates, Inc., a deficiency income tax.

2. On non-payment of the assessed amount, a warrant of distraint and levy was issued but the same was not executed because Basilan Estates, Inc. succeeded in getting the Deputy Commissioner of Internal Revenue to order the Director of the district in Zamboanga City to hold execution and maintain constructive embargo instead.

3. Because of its refusal to waive the period of prescription, the corporation's request for reinvestigation was not given due course, and on December 2, 1960, notice was served the corporation that the warrant of distraint and levy would be executed.

4.  On December 20, 1960, Basilan Estates, Inc. filed before the Court of Tax Appeals a petition for review of the Commissioner's assessment, alleging AMONG OTHERS prescription of the period for assessment and collection.

5. On October 31, 1963, the Court of Tax Appeals found that there was no prescription and affirmed the deficiency assessment in toto.

ISSUE: WON the period for assessment and collection has prescribed

HELD: No.

 There is no dispute that the assessment of the deficiency tax was made on February 26, 1959; but the petitioner claims that it never received notice of such assessment or if it did, it received the notice beyond the five-year prescriptive period.

To show prescription, the annotation on the notice "No accompanying letter 11/25/" is advanced as indicative of the fact that receipt of the notice was after March 24, 1959, the last date of the five-year period within which to assess deficiency tax, since the original returns were filed on March 24, 1954.

Although the evidence is not clear on this point, We cannot accept this interpretation of the petitioner, considering the presence of circumstances that lead Us to presume regularity in the performance of official functions. 

The notice of assessment shows the assessment to have been made on February 26, 1959, well within the five-year period. On the right side of the notice is also stamped "Feb. 26, 1959" — denoting the date of release, according to Bureau of Internal Revenue practice.

The Commissioner himself in his letter (Exh. H, p. 84 of BIR records) answering petitioner's request to lift, the warrant of distraint and levy, asserts that notice had been sent to petitioner. IIn the letter of the Regional Director forwarding the case to the Chief of the Investigation Division which the latter received on March 10, 1959 (p. 71 of the BIR records), notice of assessment was said to have been sent to petitioner. Subsequently, the Chief of the Investigation Division indorsed on March 18, 1959 (p. 24 of the BIR records) the case to the Chief of the Law Division. There it was alleged that notice was already sent to petitioner on February 26, 1959. These circumstances pointing to official performance of duty must necessarily prevail over petitioner's contrary interpretation.

Besides, even granting that notice had been received by the petitioner late, as alleged, under Section 331 of the Tax Code requiring five years within which to assess deficiency taxes, the assessment is deemed made when notice to this effect is released, mailed or sent by the Collector to the taxpayer and it is not required that the notice be received by the taxpayer within the aforementioned five-year period.

ARCHES V. BELLOSILLO, 20 SCRA 32

FACTS: Jose Arches filed on Feb. 27, 1954, his income tax return for 1953. Within 5 years, or on February 26, 1959, deficiency income tax and residence tax assessments were issued against him.Said assessments not having been disputed, the Republic represented by the BIR Regional Director, filed suit on December 29, 1960, in the municipal court, to recover the sum of P4,441.25 as deficiency income tax and additional residence tax for 1953.

Arches then moved to dismiss the complaint on the ground that it did not expressly show the approval of the Revenue Commissioner, as required by the Tax Code, and on the ground of prescription.

The municipal court denied the motion. Arches’s motion to reconsider was also denied, he resorted to the CFI on a petition for certiorari and prohibition assailing the order denying his motion to dismiss. The trial court dismissed the petition.

ISSUE: WON the approval of the CIR is needed before instituting a case.

HELD: Petitioner would make much of the lack of approval of the Revenue Commissioner. In this case, such requisite is not jurisdictional, but one relating to capacity to sue or affecting the cause of action only.So, in ruling on said question, whatever error — if any — the municipal court committed, was merely an error of judgment, not correctible by certiorari.

Neither was there grave abuse on the part of the municipal court in ruling that the express approval of the Revenue Commissioner himself was not necessary. The court relied upon Memorandum Order No. V-634 of the Revenue Commissioner, approved by the Finance Secretary, wherein the former's functions regarding the administration and enforcement of revenue laws and regulations — powers broad enough to cover the approval of court actions as required in the Tax Code — were expressly delegated to the Regional Directors. This regulation, the issuance of which was authorized by statute, has the force and effect of law. To rely upon it, hence, would not be tantamount to whimsical and arbitrary exercise of judgment.The verification by the Regional Director of the complaint constitutes sufficient approval thereof already. It states, that said Director has caused the preparation of the

complaint and that he has read the allegations thereof and they are true and correct to the best of his knowledge and belief.

Petitioner-appellant would also raise the question of prescription. Again, this is not jurisdictional. And, We have already ruled that the proper prescriptive period for bringing civil actions is five years from the date of the assessment. The three-year period urged by petitioner under Section 51 (d) refers only to the summary remedies of distraint and levy. Here, the action was commenced one year, ten months and three days after the assessments were made; hence, well within the period.

Wherefore, the dismissal of appellant's petition for certiorari by the Court of First Instance is hereby affirmed.

SY CHUICO V. COLLECTOR, 107 PHIL 428DOCTRINE: For the purposes of amusement tax, the term "GROSS RECEIPTS" embraces all the receipts of the proprietor or operator of the business. Prescription is evidentiary in nature.

FACTS: Petitioner was the owner and operator of the La Loma Cabaret in QC from 1926 to January 1956. It charged its customers P0.30 per dance: P0.10 entrance fee and the remaining P0.20 to be paid to the "bailarinas" after the dance. The customers were informed of the fees by means of posters found in conspicuous places of the cabaret stating:

1. From January 1947 - August 1950, petitioner declared in his return only the following gross receipts: o receipts from gate admissions at P0.10 each,

P59,160.40; o receipts from restaurant sales, P5,339.90; o receipts from bar sales, P47,459.10, o --- and paid thereon a 10 % amusement tax of

P11,197.40.

2. Petitioner failed to declare for tax purposes the P0.20 dance fee. Thus, respondent assessed against him a deficiency amusement tax, including50 % surcharge of P17,616.05. As well as P300.00 penalty in settlement of his violation of Section 260 of the Tax Code and the Bookkeeping Regulations.

3. Petitioner appealed to the CTA which affirmed the contention of respondent holding petitioner liable to pay P17,616.05 as deficiency amusement tax and surcharge for January 1947 - August, 1950; but, CTA rejected the P300.00 penalty alleging lack of power or authority to order the payment of such penalty. Hence, this petition.

4. Petitioner contends that because those dance fees go to the "bailarinas", they could not be considered as part of the gross receipts of the cabaret.

ISSUES: 1. Should the gross receipts include the dance fee charged by

the cabaret for its "bailarinas"? YES.2. Has the collection of the tax in question already

prescribed? SC considered that petitioner waived this defense.

HELD: Section 260 of the Tax Code applies. The owner or operator of a cabaret is required to pay an amusement tax equivalent to 10 % of the gross receipts of his business

irrespective of whether or not any amount is charged or paid for admission. The law further adds that, for the purposes of amusement tax, the term "GROSS RECEIPTS" embraces all the receipts of the proprietor or operator of the business. A cabaret is a place of amusement where customers go because of their desire to dance and where the "bailarinas" are the main attraction. Dancing is the main business and customers patronize the place attracted by the "bailarinas". As a matter of fact, "bailarinas" are the indispensable factor in the operation of the business. Whatever is paid to them should, therefore, be considered as paid on account of the business, and as such it should be considered as part of petitioner's gross receipts.

RE SURCHARGE: While there is no direct evidence to show actual fraud on the part of petitioner, the circumstances found by the CTA indicate that he has deliberately omitted in his book a sizeable portion of his taxable income which in substance amounts to fraud.

RE PRESCRIPTION: This was not raised as an issue in the petition for review filed in the CTA. It was not even touched by him in the memorandum he submitted. There is, therefore, enough reason to believe that petitioner has waived this defense and so it cannot now be entertained. To hold otherwise would be to deprive respondent of his right to show the contrary, this matter being evidentiary in nature.

CIR V. ATLAS CONSOLIDATED MINING, G.R. NO 31230-32 (2000)

CIR V. CA & CARNATION PHILS INC, G.R. NO 115712 (2000)FACTS: Carnation Phils. Inc. (Carnation), filed its Corporation Annual Income Tax Return for taxable year ending September 30, 1981; and its Manufacturers/Producers Percentage Tax Return for the quarter ending September 30, 1981. 5

On October 13, 1986, March 16, 1987 and May 18, 1987, Carnation, through its Senior Vice President Jaime O. Lardizabal, signed three separate "waivers of the Statute of Limitations Under the National Internal Revenue Code"

wherein it waives the running of the prescriptive period provided for in sections 318 and 319 and other related provisions of the National Internal Revenue Code and consents to the assessment and collection of the taxes which may be found due after reinvestigation and reconsideration at anytime before or after the lapse of the period of limitations fixed by said sections 318 and 319 and other relevant provisions of the National Internal Revenue Code, but not after (13 April 1987 for the earlier-executed waiver, or June 14, 1987 for the later waiver, or July 30, 1987 for the subsequent waiver, as the case may be). However, the taxpayer (petitioner herein) does not waive any prescription already accrued in its favor.

The waivers were not signed by the BIR Commissioner or any of his agents.

On August 5, 1987, Carnation received BIR's letter of demand dated July 29, 1987 asking the said corporation to pay deficiency income tax.

In a basic protest dated August 17, 1987, Carnation disputed the assessments and requested a reconsideration and reinvestigation thereof.

These protests were denied by the BIR Commissioner in a letter dated March 15, 1988.

Whereupon, Carnation appealed to the CTA. On January 26, 1993, the CTA issued the questioned order nulling and voiding the assessments for having been issued beyond the five-year prescriptive period provided by law.

ISSUE: WON the 3 waivers signed by private respondent are valid and binding as to toll the prescriptive period for assessment

HELD:

Sec. 318 (now Section 203) of the National Internal Revenue Code, the law then applicable reads:

Sec 318.Period of Limitations upon assessment and collection. — Except as provided in the succeeding section, internal revenue taxes shall be assessed within five years after the return was filed, and no

proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. For the purpose of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code.  (emphasis ours)

Carnation filed its annual income tax and percentage tax returns for the fiscal year ending September 30, 1981 on January 15, 1982   and November 20, 1981,   respectively. In accordance with the above-quoted provision of law, private respondent's 1981 income and sales taxes could have been validly assessed only until January 14, 1987 and November 19, 1986, respectively.   However, Carnation's income and sales taxes were assessed only on July 29, 1987, beyond the five-year prescriptive period.  

Petitioner BIR Commissioner contends that the waivers signed by Carnation were valid although not signed by the BIR Commissioner because (a) when the BIR agents/examiners extended the period to audit and investigate Carnation's tax returns, the BIR gave its implied consent to such waivers; (b) the signature of the Commissioner is a mere formality and the lack of it does not vitiate binding effect of the waivers; and (c) that a waiver is not a contract but a unilateral act of renouncing ones right to avail of the defense of prescription and remains binding in accordance with the terms and conditions set forth in the waiver. 

Petitioner's submission is inaccurate. The same tax code is clear on the matter, to wit:

Sec. 319.Exceptions as to period of limitation of assessment and collection of taxes.—(a) . . .(b) Where before the expiration of the time prescribed in the preceding section for the assessment of the tax, both the Commissioner of Internal Revenue and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at anytime prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreement

in writing made before the expiration of the period previously agreed upon.

Verily, we discern no basis for overruling the aforesaid conclusions arrived at by the Court of Appeals. In fact, there is every reason to leave undisturbed the said conclusions, having in mind the precept that all doubts as to the correctness of such conclusions will be resolved in favor of the Court of Appeals. 

What is more, the waivers in question reveal that they are in no wise unequivocal, and therefore necessitates for its binding effect the concurrence of the Commissioner of Internal Revenue. In fact, in his reply dated April 18, 1995, the Solicitor General, representing the Commissioner of Internal Revenue, admitted that subject waivers executed by Carnation were "for end in consideration of the approval by the Commissioner of Internal Revenue of its request for reinvestigation and/or reconsideration of its internal revenue case involving tax assessments for the fiscal year ended September 30, 1981 which were all pending at the time". On this basis neither implied consent can be presumed nor can it be contended that the waiver required under Sec. 319 of the Tax Code is one which is unilateral nor can it be said that concurrence to such an agreements a mere formality because it is the very signatures of both the Commissioner of Internal Revenue and the taxpayer which give birth to such a valid agreement.CIR V. BF GOODRICH PHILS, G.R. NO 104171 (1999)FACTS: BF Goodrich was an American-owned and controlled corporation. As a condition for approving the manufacture of tires and other rubber products, the Central Bank required that it should develop a rubber plantation.

1. In compliance with this requirement, it purchased from the Philippine government, certain parcels of land and there developed a rubber plantation.

2. On August 2, 1973, the justice secretary rendered an opinion stating that, upon the expiration of the Parity Amendment, the ownership rights over public agricultural lands, including the right to dispose or sell their real estate, would be lost.

3. On the basis of this Opinion, private respondent sold to Siltown Realty, its Basilan landholding for P500,000. In accord with the terms of the sale, Siltown Realty, leased

the land to private respondent for a period of 25 years, with an extension of another 25 years at the latter's option.

4. The books and accounts of private respondent were examined for the purpose of determining its tax liability for taxable year 1974. The examination resulted in the April 23, 1975 assessment of for deficiency income tax, which it duly paid.

5. Subsequently, the BIR also examined Siltown's business, income and tax liabilities. The BIR issued against private respondent on October 10, 1980, an assessment for deficiency in donor's tax in relation to the sale of its Basilan landholdings to Siltown. The BIR deemed the consideration for the sale insufficient.

6. On November 24, 1980, private respondent contested this assessment. On April 9, 1981, it received another assessment dated March 16, 1981, which increased the amount demanded for the alleged deficiency donor's tax, surcharge, interest and compromise penalty.

7. Private respondent appealed the correctness and the legality of these last two assessments.

ISSUE: WON petitioner's right to assess herein deficiency donor's tax has indeed prescribed as ruled by public respondent Court of Appeals.

HELD: The petition has no merit. Applying this provision of law to the facts at hand, it is clear that the October 16, 1980 and the March 1981 assessments were issued by the BIR beyond the five-year statute of limitations.

The subsequent assessment made by the respondent Commissioner on October 40, 1980, modified by that of March 16, 1981, violates the law. Involved in this petition is the income of the petitioner for the year 1974, the returns for which were required to be filed on or before April 15 of the succeeding year. The returns for the year 1974 were duly filed by the petitioner, and assessment of taxes due for such year — including that on the transfer of properties on June 21, 1974 — was made on April 13, 1975 and acknowledged by Letter of Confirmation terminating the examination on this subject.

For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the

law on prescription, being a remedial measure, should be liberally construed in order to afford such protection.     As a corollary, the exceptions to the law on prescription should perforce be strictly construed.

Sec. 15 of the NIRC, on the other hand, provides that "[w]hen a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by law or regulation, or when there is reason to believe that any such report is false, incomplete, or erroneous, the Commissioner of Internal Revenue shall assess the proper tax on the best evidence obtainable." Clearly, Section 15 does not provide an exception to the statute of limitations on the issuance of an assessment, by allowing the initial assessment to be made on the basis of the best evidence available. Having made its initial assessment in the manner prescribed, the commissioner could not have been authorized to issue, beyond the five-year prescriptive period, the second and the third assessments under consideration before us.

Nor is petitioner's claim of falsity sufficient to take the questioned assessments out of the ambit of the statute of limitations. It is possible that real property may be sold for less than adequate consideration for a bona fide business purpose; in such event, the sale remains an "arm's length" transaction.

Since the BIR failed to demonstrate clearly that private respondent had filed a fraudulent return with the intent to evade tax, or that it had failed to file a return at all, the period for assessments has obviously prescribed. Such instances of negligence or oversight on the part of the BIR cannot prejudice taxpayers, considering that the prescriptive period was precisely intended to give them peace of mind.

Based on the foregoing, a discussion of the validity and legality of the assailed assessments has become moot and unnecessary.

CIR V. PASCOR REALTY, G.R. NO 128315 (1999)DOCTRINE: An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and interests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer. Accordingly, an affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the Court of Tax Appeals.

FACTS: By virtue of a Letter of Authority, BIR Commissioner Jose U. Ong authorized 2 Revenue Officers to examine the books of accounts and other accounting records of Pascor Realty (PRDC) for the years 1986 - 1988. Examination resulted in a recommendation for the issuance of an assessment in the amounts of P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively.

1. CIR then filed a criminal complaint before the DOJ against the PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging evasion of taxes (P10,513,671). Private respondents disputed the tax assessment and tax

liability. Private respondents received a subpoena from the DOJ in connection with the criminal complaint filed by the BIR against them.

2. May 17, 1995, CIR denied the urgent request for reconsideration/reinvestigation on the ground that no formal assessment has as yet been issued by the Commissioner.

3. Private respondents elevated the case to the CTA on a petition for review; CIR filed an MTD on the ground that CTA has no jurisdiction over the subject matter, as there was no formal assessment issued against the petitioners. CTA denied the said MTD; CIR also did not file an answer nor move to reconsider the resolution.

4. Instead, the CIR filed this petition with the CA alleging that CTA acted with grave abuse of discretion and without jurisdiction.

5. CA sustained the CTA and dismissed the petition. Hence, this recourse to SC.

6. CA held that the tax court committed no grave abuse of discretion in ruling that the Criminal Complaint for tax evasion filed by the CIR with the DOJ constituted an assessment of the tax due, and that the said assessment could be the subject of a protest. By definition, an assessment is simply the statement of the details and the amount of tax due from a taxpayer. Based on this definition, the details of the tax contained in the BIR examiners Joint Affidavit, which was attached to the criminal Complaint, constituted an assessment. Since the assailed Order of the CTA was merely interlocutory and devoid of grave abuse of discretion, a petition for certiorari did not lie.

7. Petitioner argues that the filing of the criminal complaint with the DOJ cannot be construed as a formal assessment of private respondents tax liabilities. This position is based on Section 205 of the NIRC which provides that remedies for the collection of deficient taxes may be by either civil or criminal action. Likewise, petitioner cites Section 223(a) of the same Code, which states that in case of failure to file a return, the tax may be assessed or a proceeding in court may be begun without assessment.

8. Respondents, on the other hand, maintain that an assessment is not an action or proceeding for the collection of taxes, but merely a notice that the amount stated

therein is due as tax and that the taxpayer is required to pay the same. Thus, qualifying as an assessment was the BIR examiners Joint Affidavit, which contained the details of the supposed taxes due from respondent for taxable years ending 1987 and 1988, and which was attached to the tax evasion Complaint filed with the DOJ. Consequently, the denial by the BIR of private respondents request for reinvestigation of the disputed assessment is properly appealable to the CTA.

ISSUE: Could the Affidavit-Report attached to the criminal Complaint filed with the DOJ constituted an assessment that could be questioned before the Court of Tax Appeals? NO.

HELD: Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition or form of an assessment. However, the NIRC defines the specific functions and effects of an assessment. To consider the affidavit attached to the Complaint as a proper assessment is to subvert the nature of an assessment and to set a bad precedent that will prejudice innocent taxpayers.

Not all documents coming from the BIR containing a computation of the tax liability can be deemed assessments. An assessment must be sent to and received by a taxpayer, and must demand payment of the taxes described therein within a specific period. Thus, the NIRC imposes a 25% penalty, in addition to the tax due, in case the taxpayer fails to pay the deficiency tax within the time prescribed for its payment in the notice of assessment. Likewise, an interest of 20% per annum, or such higher rate as may be prescribed by rules and regulations, is to be collected from the date prescribed for its payment until the full payment.

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it.

Section 203: provides that internal revenue taxes must be assessed within 3 years from the last day within which to file the return.

Section 222: specifies a period of 10 years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return.

Section 228: states that said assessment may be protested only within 30 days from receipt thereof.

Necessarily, the taxpayer must be certain that a specific document constitutes an assessment. Otherwise, confusion would arise regarding the period within which to make an assessment or to protest the same, or whether interest and penalty may accrue thereon. That the said document is a notice duly sent to the taxpayer. Indeed, an assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer.

In the present case, the revenue officers Affidavit merely contained a computation of respondent’s tax liability. It did not state a demand or a period for payment. Worse, it was addressed to the justice secretary, not to the taxpayers.

That the BIR examiners Joint Affidavit attached to the Criminal Complaint contained some details of the tax liabilities of private respondents does not ipso facto make it an assessment. The purpose of the Joint Affidavit was merely to support and substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to be a notice of the tax due and a demand to the private respondents for payment thereof.

In addition, what private respondents sent to the commissioner was an MR of the tax evasion charges filed, not of an assessment. “This is to request for reconsideration of the tax evasion charges against my client, PASCOR Realty…”

ADDITIONAL ISSUE: Assessment Not Necessary Before Filing of Criminal Complaint

Private respondents maintain that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment.

Furthermore, Section 205 mandates that the civil and criminal aspects of the case may be pursued simultaneously.

To reiterate, said Section 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to show that they are entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment.

PROCEDURE: The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the commissioner has issued an assessment. It must be stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.

MARCOS II V. CA,CIR & DE GUZMAN, 273 SCRA 46

CIR V. SUYOC CONSOLIDATED MINING, 104 PHIL 819FACTS: Due to the chaos caused by World War II, Congress extended the filing of income tax returns for the year 1941. The extension was up to December 31, 1945. However, Suyoc Consolidated Mining Company (SCMC) due to lost records requested the Commissioner of Internal Revenue (CIR) for further extension. The same was granted and SCMC was allowed to file its return until February 15, 1946. On February 12, 1946, SCMC filed a tentative income tax return. On November 28, 1946, SCMC filed a second final return. In February 1947, the CIR made an assessment notifying SCMC that is liable for P33k in taxes. The CIR gave SCMC 3 months to pay but the latter failed to make payment.

What followed was a series of negotiations as SCMC repeatedly asked for reconsideration and reinvestigation. Due to SCMC’s requests, the CIR had to revise the assessment several times. Eventually in July 1955, the CIR made a final assessment notice (FAN) notifying SCMC that it is liable for P24k in taxes. This time, SCMC questioned the validity of the assessment as it now alleged that it was issued beyond the 5 year prescriptive period.

(NOTE: Under the National Internal Revenue Code of 1997, prescriptive period for normal assessment is 3 years).

The issue reached the Court of Tax Appeals (CTA) which ruled that the assessment issued  is void because in the first place, when SCMC requested for a  reinvestigation, there was no agreement as to the extension of the prescriptive period; that a mere request for reinvestigation does not automatically suspend the running of the prescriptive period. The CTA ruled that the FAN issued in 1955 was already way beyond the 5 year prescriptive period.

ISSUE: WON the CTA is correct

HELD: No. This is one case where a taxpayer is barred from setting up the defense of prescription even though there was not a written agreement. It is true that when a request for reinvestigation is made  by the taxpayer, the same does not toll the running of the prescriptive period unless there is a written agreement between the CIR and the taxpayer. However, in this case, due to the repeated requests of SCMC which were acted upon by the government for good reasons  the government was persuaded to delay the final assessment. The applicable principle is fundamental and unquestioned. ‘He who prevents a thing from being done may not avail himself of the nonperformance which he has himself occasioned, for the law says to him in effect “this is your own act, and therefore you are not damnified.” The tax could have been collected, but the government withheld action at the specific request of SCMC. SCMC is now estopped and should not be permitted to raise the defense of the Statute of Limitations.

PHILIPPINE JOURNALISTS INC V. CIR, G.R. NO 162582 (2004)DOCTRINE: The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter’s real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law. (Republic of the Phils. v. Ablaza)

A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers’ right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed.

It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed.

The waiver is not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement between two parties to extend the period to a date certain. The conformity of the BIR must be made by either the Commissioner or the Revenue District Officer.

FACTS: The case arose from the Annual Income Tax Return filed by petitioner for the calendar year ended December 31, 1994 which presented a net income of P30,877,387.00 and the tax due of P10,807,086.00. After deducting tax credits for the year, petitioner paid the amount of P10,247,384.00.

1. August 10, 1995, Revenue District Office issued Letter of Authority (LOA) to examine petitioner’s books of account and other accounting records for internal revenue taxes for January 1 - December 31, 1994.

2. Petitioner was told that there were deficiency taxes, inclusive of surcharges, interest and compromise penalty

3. August 29, 1997, the Revenue District Officer invited petitioner to send a representative to an informal conference on September 15, 1997.o SEPTEMBER 22, 1997 , petitioner’s Comptroller,

Lorenza Tolentino, executed a "Waiver of the Statute of Limitation Under the National Internal Revenue Code (NIRC)" which waived the running of the prescriptive period provided by Sections 223 and 224 of the NIRC and consented to the assessment and collection of taxes which may be found due after the examinationat any time after the lapse of the period of limitations fixed until the completion of the investigation.

4. July 2, 1998, Revenue Officer submitted his audit report recommending the issuance of an assessment and deficiency taxes of P136,952,408.97.

5. October 5, 1998, BIR issued Pre-Assessment Notices informing petitioner of the results of the investigation.

6. December 9, 1998, BIR issued Assessment/Demand stating the following deficiency taxes, inclusive of interest and compromise penalty for a Total of P111,291,214.46

7. March 16, 1999, a Preliminary Collection Letter was sent to the petitioner to pay the assessment within (10) days from receipt of the letter.

8. November 10, 1999, a Final Notice for Seizure was issued giving the petitioner (10) days from receipt to pay. o November 24, 1999, Petitioner received a copy of the

final notice

o November 26, 1999, petitioner asked to be clarified how the tax liability of P111M was reached and requested an extension of (30) days from receipt of the clarification within which to reply.

9. Petitioner asserted that its records do not show receipt of Tax Assessment/Demand. Petitioner also contested that the assessment had no factual and legal basis.

10. March 28, 2000, a Warrant of Distraint and/or Levy was received by the petitioner.

11. Petitioner filed a Petition for Review with the CTA complaining among others that the assessment, having been made beyond the 3-year prescriptive period, is null and void.

12. May 14, 2002, CTA granted the petition. It ruled that since the subject assessments were issued beyond the three-year prescriptive period, it becomes imperative to rule on the validity of the waiverallegedly executedon September 22, 1997, for if this court finds the same to be ineffective, then the assessments must necessarily fail. CTA considered the waiver to be without any binding effect because it was an unlimited waiver. CTA found the waiver executed by Phil. Journalists to be invalid for the following reasons: (1) it does not indicate a definite expiration date; (2) it does not state the date of acceptance by the BIR; and (3) Phil. Journalist, the taxpayer, was not furnished a copy of the waiver.

o under RMO No. 20-90, the waiver must be executed in three (3) copies, the second copy of which is for the taxpayer. It is likewise required that the fact of receipt by the taxpayer of his/her file copy be indicated in the original copy. Again, respondent failed to comply.

13. August 12, 2002, an appeal was filed with the CA which disagreed with the CTA saying that the remedy was not proper. Only decisions of the BIR, denying the request for reconsideration or reinvestigation may be appealed to the CTA. Mere assessment notices which have become final after the lapse of (30)-day reglementary period are not appealable. Thus, CTA should not have entertained the petition at all. The grounds relied upon by the CTA are merely formal in nature.

o The biggest flaw of the decision was the pronouncement on the need for a definite expiration date. The period of prescription for the assessment of taxes may be extended provided that the extension be made in writing and that it be made prior to the expiration of the period of prescription.

ISSUE: Was the waiver of the statute of limitation valid? NO.

HELD:

RE JURISDICTION OF THE CTA. The petitioner argues that the case was brought to the CTA because the warrant of distraint or levy was illegally issued and that no assessment was issued because it was based on an invalid waiver of the statutes of limitations.

SC agrees with petitioner. Section 7 of RA No. 1125 (the Act Creating the CTA) provides for the jurisdiction. The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds. The second part of the provision covers other cases that arise out of the NIRC or related laws administered by the BIR. It gives the CTA the jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the Waiver of Statute of Limitations was validly effected.

RE RMO NO.20-90 (RMO No. 20-90) VALID WAIVER OF THE STATUTE OF LIMITATIONS. CA held that the requirements and procedures laid down in the RMO are only formal in nature and did not invalidate the waiver that was signed even if the requirements were not strictly observed.

Sections 203 and 222 of NIRC provides for a statute of limitations on the assessment and collection of internal revenue taxes in order to safeguard the interest of the taxpayer against unreasonable investigation. Unreasonable investigation contemplates cases where the period for assessment extends indefinitely because this deprives the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time.

RMO No. 20-90 implements these provisions of the NIRC relating to the period of prescription for the assessment and collection of taxes. The Order supports petitioner’s argument that the RMO

must be strictly followed. Any revenue official found not to have complied shall be administratively dealt with.

The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appeals. RMO No. 20-90 explains the rationale of a waiver:

The phrase "but not after _________ 19___" should be filled up. This indicates the expiry date of the period agreed upon to assess/collect the tax after the regular 3-year period of prescription. The period agreed upon shall constitute the time within which to effect the assessment/collection of the tax in addition to the ordinary prescriptive period.

As found by the CTA, the Waiver of Statute of Limitations, signed by petitioner’s comptroller (September 22, 1997) is not valid and binding because it does not conform with the provisions of the RMO. It did not specify a definite agreed date between the BIR and petitioner, within which the former may assess and collect revenue taxes. Thus, petitioner’s waiver became unlimited in time, violating Section 222(b) of the NIRC.

The waiver is also defective from the government side because it was signed only by a revenue district officer, NOT the Commissioner, as mandated by the NIRC and RMO No. 20-90. The waiver is not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement between two parties to extend the period to a date certain. The conformity of the BIR must be made by either the Commissioner or the Revenue District Officer.

This case involves taxes amounting to more than P1M and executed almost seven months before the expiration of the three-year prescription period. For this, the RMO requires the Commissioner of Internal Revenue to sign for the BIR.

Section 319 of NIRC is clear and explicit that the waiver of the 5-year prescriptive period must be in writing and signed by both the BIR Commissioner and the taxpayer. RE DEFECT IN THE DATE OF ACCEPTANCE. CA held that the date of the execution of the waiver on September 22, 1997 could reasonably be understood as the same date of acceptance by the BIR. Petitioner points out however that Revenue District Officer (Ms.Sarmiento) could not have accepted the waiver yet because

she was not the Revenue District Officer on such date. Sarmiento’s transfer and assignment to RDO was only signed by the BIR Commissioner on January 16, 1998. CTA noted that it is unlikely as well that Ms. Sarmiento made the acceptance on January 16, 1998 because "Revenue Officials normally have to conduct first an inventory of their pending papers and property responsibilities."

RE PETITIONER WAS NOT FURNISHED A COPY OF THE WAIVER. Under RMO No. 20-90, the waiver must be executed in 3 copies with the 2 nd copy for the taxpayer . CA did not think this was important because the petitioner need not have a copy of the document it knowingly executed. It stated that the reason copies are furnished is for a party to be notified of the existence of a document, event or proceeding. CA assumes that the waiver is a unilateral act of the taxpayer when it is in fact and in law an agreement between the taxpayer and the BIR. When the petitioner’s comptroller signed the waiver on September 22, 1997, it was not yet complete and final because the BIR had not assented. There is compliance with the provision only after the taxpayer received a copy of the waiver accepted by the BIR. The requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the document but of the acceptance by the BIR and the perfection of the agreement.

The waiver document is incomplete and defective and thus the 3-year rescriptive period was not tolled or extended and continued to run until April 17, 1998. Consequently, the Assessment issued on December 9, 1998 was invalid because it was issued beyond the (3) year period. Similarly, the Warrant of Distraint and/or Levy is also null and void for having been issued pursuant to an invalid assessment. WHEREFORE, the instant petition for review is GRANTED.

TAXATION : Three-year period within which to assess Internal Revenue Taxes, Waiver and Extension, Requisites for Validity.CIR V. FMF DEVELOPMENT CORP, G.R. NO 167765 (2008)FACTS: On April 15, 1996 respondent FMF Corporation filed its corporate income tax return for taxable year 1995 and declared a loss of Php 3,348,932. On May 8, 1996, it filed an amended return and declared a loss of Php 2,826,541.00. Then the Bureau of Internal Revenue sent FMF pre assessment notices all dated October 6, 1998 informing it of its alleged tax liabilities. FMF filed a

protest against the notices with the BIR and requested reconsideration/reinvestigation.

1. On January 22, 1999, Revenue District Officer Rogelio Zambarrano informed FMF that the reinvestigation had been referred to Revenue Officer Alberto Fortaleza. He also advised FMF of the informal conference set on February 2, 1999 to allow it to present evidence to dispute the assessments.

2. On February 9, 1999, FMF President Enrique Fernandez executed a waiver of the three-year prescriptive period for the BIR to assess taxes, thus extending the assessment period until October 31, 1999. The waiver was accepted and signed by RDO Zambarrano.

3. On October 18, 1999, FMF received from BIR amended pre-assignment notices dated October 6, 1999. FMF immediately filed a protest on November 3, 1999 but on that same date it received BIR’s demand letter and assessment notice dated October 25, 1999 stating FMF’s alleged deficiency taxes in the sum of Php 1,608,015.50 plus penalties and accrued interests all in the total of Php 2,053,698.25.

4. FMF filed a letter of protest with BIR, invoking the defense of prescription by reason of the invalidity of the waiver. BIR, however, insisted on the validity of the waiver and advised FMF to immediately settle its tax liabilities or be faced with judicial action.

5. FMF filed a petition for review with the Court of Tax Appeals challenging the validity of the assessment. The CTA granted the petition and cancelled the assessment, ruling that FMF’s waiver did not extend the three-year prescriptive period within which BIR could make the assessment. CTA did not give validity to the waiver because first, it did not state the dates of its execution and acceptance; second, FMF was not furnished a copy of the waiver signed by Zambarrano; and third, the amount of tax involved was more than Php1 million, and the period to assess was yet about to prescribe, hence it should have been accepted and signed by the Commissioner of Internal Revenue, not a mere RDO. BIR moved for reconsideration of the CTA decision but its motion was denied. It then sought recourse with the Court of Appeals but said court denied its petition and affirmed the CTA decision.

ISSUE: Petitioner Commissioner of Internal Revenue presents these basic questions for resolution: (1) Is the waiver valid? And (2) Did the three-year period to assess internal revenue taxes prescribe?

HELD:(1) Three-year period within which to asses internal

revenue taxes; Extension by means of waiver; Requisites.- Petitioner contends that the waiver was validly executed mainly because it complied with Section 222(b) of the National Internal Revenue Code (NIRC). Petitioner points out that the waiver was in writing, signed by the taxpayer and the Commissioner, and executed within the three-year prescriptive period. Petitioner also argues that the requirements in RMO No. 20-90 are merely directory; thus, the indication of the dates of execution and acceptance of the waiver, by the taxpayer and the BIR, respectively, are not required by law. Petitioner adds that there is no provision in RMO No. 20-90 stating that a waiver may be invalidated upon failure of the BIR to furnish the taxpayer a copy of the waiver. Further, it contends that respondent’s execution of the waiver was a renunciation of its right to invoke prescription. Petitioner also argues that the government cannot be estopped by the mistakes committed by its revenue officer in the enforcement of RMO No. 20-90.

On the other hand, respondent counters that the waiver is void because it did not comply with RMO No. 20-90. Respondent assails the waiver because (1) it was not signed by the Commissioner despite the fact that the assessment involves an amount of more than Php 1 Million; (2) there is no stated date of acceptance by the Commissioner or his duly authorized representative; and (3) it was not furnished a copy of the BIR-accepted waiver. Respondent also cites Philippine Journalists, Inc. vs Commissioner of Internal Revenue (447 SCRA 214 (2004)) and contends that the procedures in RMO No. 20-90 are mandatory in character, precisely to give full effect to Section 222 (b) of the NIRC. Moreover, a waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription.

After considering the issues and the submissions of the parties in the light of the facts of this case, we are in agreement that the petition lacks merit.

Under Section 203 of the NIRC, internal revenue taxes must be assessed within years of counted from the period fixed by law for the filing of the tax return or the actual date of filing, whichever is later. This mandate governs the question of prescription of the government’s right to assess internal revenue taxes primarily to safeguard the interests of taxpayers from unreasonable investigation. Accordingly, the government must assess internal revenue taxes on time so as not to extend indefinitely the period of assessment and deprive the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of reasonable period of time.

An exception to the three-year prescriptive period on the assessment of taxes is Section 222 (b) of the NIRC, which provides:

(b) if before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon.

The above provision authorizes the extension of the original three-year period by the execution of a valid waiver, where the taxpayer and the BIR agreed in writing that the period to issue an assessment and collect the taxes due is extended to an agreed date. Under RMO No. 20-90, which implements Section 203 and 222 (b), the following procedures should be followed:

1. The waiver must be in the form identified as Annex “A” hereof…

2. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials.

Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue official authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has accepted and agreed to the waiver. The date of such acceptance by the Bureau should be indicated. Both the date of execution by the taxpayer and date of acceptance by the bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.

3. The following revenue officials are authorized to sign the waiver.A. In the National Office

3. Commissioner For tax cases involving more than Php1M

B. In the Regional Offices1. The Revenue District Officer with respect to tax

cases still pending investigation and the period to assess is about to prescribe regardless amount.

4. The waiver must be executed in three (3) copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy shall be indicated in the original copy.

5. The foregoing procedures shall be strictly followed. Any revenue official found not to have complied with this Order resulting in prescription of the right to assess/collect shall be administratively dealt with.

(2) Waiver and extension of three-year prescriptive period; The waiver in this case is defective and invalid, hence the tax assessment is time-barred.- Applying RMO No. 20-90, the waiver in question here was defective and did not validly extend the original three-year prescriptive period. Firstly, it was not proven that respondent was furnished a copy of the BIR-accepted waiver. Secondly, the waiver was signed only by a revenue district officer, when it should have been signed by the Commissioner as mandated by the NIRC and RMO no. 20-90, considering that the case involves an amount of more than Php 1 Million, and the period to assess is not yet about to prescribe. Lastly, it did not contain the date of acceptance by the Commissioner of Internal Revenue, a requisite necessary to determine whether the waiver was validly accepted before the expiration of the original three-year period. Bear in mind that the waiver in question is a bilateral agreement, thus necessitating the very signatures of both the Commissioner and taxpayer to give birth to a valid agreement.

Petitioner contends that the procedures in RMO No. 20-90 are merely directory and that the execution of a waiver was a renunciation of respondent’s right to invoke prescription. We do not agree. RMO No. 20-90 must be strictly followed. In Philippine Journalists, Inc. vs. Commissioner of Internal Revenue, we ruled that a waiver of the statute of limitations under the NIRC, to a certain extent being a derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations, must be carefully and strictly construed. The waiver of the statute of

limitations does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally, particularly where the language of the document is equivocal. Notably, in this case, the waiver became unlimited in time because it did not specify a definite date, agreed upon between the BIR and respondent, within which the former may assess and collect taxes. It also had no binding effect on respondent because there was no consent by the Commissioner. On this basis, no implied consent can be presumed, nor can it be contented that the concurrence to such waiver is a mere formality.

Consequently, petitioner cannot rely on its invocation of the rule that the government cannot be estopped by the mistakes of its revenue officers in the enforcement of RMO No. 20-90 because the law on prescriptions should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commissioner which recommended the approval of the law. To the Government, its tax officers are obliged to act promptly in the making of assessment so that taxpayers, after the lapse of the period of prescription, would have a feeling of security against unscrupulous tax agents who will always try to find an excuse to inspect the books of taxpayers, not to determine the latter’s real liability but to take advantage of a possible opportunity to harass even law-abiding businessmen. Without such legal defense, taxpayers would be open season to harassment by unscrupulous tax agents.

In fine, Assessment Notice No. 33-1-00487-95 dated October 25, 1999, was issued beyond the three-year prescriptive period. The waiver was incomplete and defective and thus, the three-year prescriptive period was not tolled nor extended and continued to run until April 15, 1999. Even if the three-year period be counted from May 8, 1996, the date of filing of the amended return, assuming the amended return was substantially different from the original return, a case which affects the reckoning point of the prescriptive period, still the subject assessment is definitely considered time-barred.

BPI V. CIR, G.R. NO 139736 (2005)FACTS: On two separate occasions, particularly on 06 June 1985 and 14 June 1985, BPI sold United States (US) $500,000.00 to the Central Bank of the Philippines (Central Bank), for the total sales amount of US$1,000,000.00. On 10 October 1989, the Bureau of Internal Revenue (BIR) issued Assessment No. FAS-5-85-89-002054,[3] finding petitioner BPI liable for deficiency DST on its afore-mentioned sales of foreign bills of exchange to the Central Bank, 

Petitioner BPI received the Assessment, together with the attached Assessment Notice,[4] on 20 October 1989. Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November 1989, and filed with the BIR on 17 November 1989. 

Petitioner BPI did not receive any immediate reply to its protest letter.  However, on 15 October 1992, the BIR issued a Warrant of Distraint and/or Levy[6] against petitioner BPI for the assessed deficiency DST for taxable year 1985, in the amount of P27,720.00 (excluding the compromise penalty of P300.00).  It served the Warrant on petitioner BPI only on 23 October 1992.[7]  Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its counsel received a letter, dated 13 August 1997, signed by then BIR Commissioner LiwaywayVinzons-Chato, denying its  “request for reconsideration

 Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a Petition for Review with the CTA on 10 October 1997;[9] 

After due trial, the CTA rendered a Decision on 02 February 1999, Section 320 (now 223) of the Tax Code, clearly states that a request for reinvestigation which is granted by the Commissioner, shall suspend the prescriptive period to collect.  The underscored portion above does not mean that the Commissioner will cancel the subject assessment but should be construed as when the same was entertained by the Commissioner by not issuing any warrant of distraint or levy on the properties of the taxpayer or any action prejudicial to the latter unless and until the request for reinvestigation is finally given due course.  Taking into consideration this provision of law and the aforementioned ruling of the Supreme Court in Wyeth Suaco which specifically and categorically states that a protest could be considered as a request for reinvestigation, We rule that prescription has not set in against the government.[11]

 In sum, the CTA decided that the statute of limitations for respondent BIR Commissioner to collect on Assessment No. FAS-5-85-89-002054 had not yet prescribed; nonetheless, it still ordered the cancellation of the said Assessment because the sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were tax-exempt.

 Herein respondent BIR Commissioner appealed the Decision of the CTA to the Court of Appeals.  In its Decision dated 11 August 1999,[14] the Court of Appeals sustained the finding of the CTA on the first issue, that the running of the prescriptive period for collection on Assessment No. FAS-5-85-89-002054 was suspended when herein petitioner BPI filed a protest on 17 November 1989 and,

therefore, the prescriptive period for collection on the Assessment had not yet lapsed.  In the same Decision, however, the Court of Appeals reversed the CTA on the second issue and basically adopted the position of the respondent BIR Commissioner that the sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were subject to DST.  The Court of Appeals, thus, ordered the reinstatement of Assessment No. FAS-5-85-89-002054 which required petitioner BPI to pay the amount of P28,020.00 as deficiency DST for taxable year 1985, inclusive of the compromise penalty. 

HELD: Anent the question of prescription, this Court disagrees in the Decisions of the CTA and the Court of Appeals, and herein determines the statute of limitations on collection of the deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed.

The period for the BIR to assess and collect an internal revenue tax is limited to three years by Section 203 of the Tax Code of 1977

 The three-year period of limitations on the assessment and collection of national internal revenue taxes set by Section 203 of the Tax Code of 1977, as amended, can be affected, adjusted, or suspended, in accordance with the following provisions of SEC. 223. – Exceptions as to period of limitation of assessment and collection of taxes. 

The BIR has three years, counted from the date of actual filing of the return or from the last date prescribed by law for the filing of such return, whichever comes later, to assess a national internal revenue tax or to begin a court proceeding for the collection thereof without an assessment.  In case of a false or fraudulent return with intent to evade tax or the failure to file any return at all, the prescriptive period for assessment of the tax due shall be 10 years from discovery by the BIR of the falsity, fraud, or omission.  When the BIR validly issues an assessment, within either the three-year or ten-year period, whichever is appropriate, then the BIR has another three years[19] after the assessment within which to collect the national internal revenue tax due thereon by distraint, levy, and/or court proceeding.  The assessment of the tax is deemed made and the three-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent by the BIR to the taxpayer.[20]

In the present Petition, there is no controversy on the timeliness of the issuance of the Assessment, only on the prescription of the period to collect the deficiency DST following its Assessment.  While Assessment No. FAS-5-85-89-002054 and its corresponding Assessment Notice were both dated 10 October 1989 and were received by petitioner BPI on 20 October 1989, there was no showing as to when the said Assessment and Assessment Notice were released, mailed or sent by the BIR.  Still, it can be granted that the latest date the BIR could have released, mailed or sent the Assessment and Assessment Notice to petitioner BPI was on the same date they were received by the latter, on 20 October 1989.  Counting the three-year prescriptive period, for a total of 1,095 days,[21] from 20 October 1989, then the BIR only had until 19 October 1992 within which to collect the assessed deficiency DST. 

The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-89-002054 was its issuance and service of a Warrant of Distraint and/or Levy on petitioner BPI.  Although the Warrant was issued on 15 October 1992, previous to the expiration of the period for collection on 19 October 1992, the same was served on petitioner BPI only on 23 October 1992. 

 It is not essential that the Warrant of Distraint and/or Levy be fully executed so that it can suspend the running of the statute of limitations on the collection of the tax.  It is enough that the proceedings have validly began or commenced and that their execution has not been suspended by reason of the voluntary desistance of the respondent BIR Commissioner.  It is only logical to require that the Warrant of Distraint and/or Levy be, at the very least, served upon the taxpayer in order to suspend the running of the prescriptive period for collection of an assessed tax, because it may only be upon the service of the Warrant that the taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer, and the resolute intention of the BIR to collect the tax assessed.If the service of the Warrant of Distraint and/or Levy on petitioner BPI on 23 October 1992 was already beyond the prescriptive period for collection of the deficiency DST, which had expired on 19 October 1992, then what more the letter of respondent BIR Commissioner, dated 13 August 1997 and received by the counsel of the petitioner BPI only on 11 September 1997, denying the protest of petitioner BPI and requesting payment of the deficiency DST?  Even later and more unequivocally barred by prescription on collection was the demand made by respondent BIR Commissioner

for payment of the deficiency DST in her Answer to the Petition for Review of petitioner BPI before the CTA, filed on 08 December 1997.[23]

 Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation.  The indefinite extension of the period for assessment is unreasonable because it deprives the said taxpayer of the assurance that he will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time.[24]  As aptly explained in Republic of the Philippines v. Ablaza[25] –

 The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter’s real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens.  Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents.  The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law.

  

A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, must be: (1) in writing; (2) agreed to by both the Commissioner and the taxpayer; (3) before the expiration of the ordinary prescriptive periods for assessment and collection; and (4) for a definite period beyond the ordinary prescriptive periods for assessment and collection.  The period agreed upon can still be extended by subsequent written agreement, provided that it is executed prior to the expiration of the first period agreed upon.  The BIR had issued Revenue Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down an even more detailed procedure for the proper execution of such a waiver.  RMO No. 20-90 mandates that the

procedure for execution of the waiver shall be strictly followed, and any revenue official who fails to comply therewith resulting in the prescription of the right to assess and collect shall be administratively dealt with.

 This Court had consistently ruled in a number of cases that a request for reconsideration or reinvestigation by the taxpayer, without a valid waiver of the prescriptive periods for the assessment and collection of tax, as required by the Tax Code and implementing rules, will not suspend the running thereof.[29]

 In the Petition at bar, petitioner BPI executed no such waiver of the statute of limitations on the collection of the deficiency DST per Assessment No. FAS-5-85-89-002054.  In fact, an internal memorandum of the Chief of the Legislative, Ruling & Research Division of the BIR to her counterpart in the Collection Enforcement Division, dated 15 October 1992, expressly noted that, “The taxpayer fails to execute a Waiver of the Statute of Limitations extending the period of collection of the said tax up to December 31, 1993 pending reconsideration of its protest. . .”[30]  Without a valid waiver, the statute of limitations on collection by the BIR of the deficiency DST could not have been suspended under paragraph (d) of Section 223 of the Tax Code of 1977, as amended. To summarize all the foregoing discussion, this Court lays down the following rules on the exceptions to the statute of limitations on collection.

 The statute of limitations on collection may only be interrupted or suspended by a valid waiver executed in accordance with paragraph (d) of Section 223 of the Tax Code of 1977, as amended, and the existence of the circumstances enumerated in Section 224 of the same Code, which include a request for reinvestigation granted by the BIR Commissioner. 

 Even when the request for reconsideration or reinvestigation is not accompanied by a valid waiver or there is no request for reinvestigation that had been granted by the BIR Commissioner, the taxpayer may still be held in estoppel and be prevented from setting up the defense of prescription of the statute of limitations on collection when, by his own repeated requests or positive acts, the Government had been, for good reasons, persuaded to postpone collection to make the taxpayer feel that the demand is

not unreasonable or that no harassment or injustice is meant by the Government, as laid down by this Court in the Suyoc case.  Applying the given rules to the present Petition, this Court finds that –

(a) The statute of limitations for collection of the deficiency DST in Assessment No. FAS-5-85-89-002054, issued against petitioner BPI, had already expired; and

(b) None of the conditions and requirements for exception from the statute of limitations on collection exists herein:  Petitioner BPI did not execute any waiver of the prescriptive period on collection as mandated by paragraph (d) of Section 223 of the Tax Code of 1977, as amended; the protest filed by petitioner BPI was a request for reconsideration, not a request for reinvestigation that was granted by respondent BIR Commissioner which could have suspended the prescriptive period for collection under Section 224 of the Tax Code of 1977, as amended; and, petitioner BPI, other than filing a request for reconsideration of Assessment No. FAS-5-85-89-002054, did not make repeated requests or performed positive acts that could have persuaded the respondent BIR Commissioner to delay collection, and that would have prevented or estopped petitioner BPI from setting up the defense of prescription against collection of the tax assessed, as required in the Suyoc case.

         WHEREFORE, based on the foregoing, the instant Petition is GRANTED.  The Decision of the Court of Appeals in CA-G.R. SP No. 51271, dated 11 August 1999, which reinstated Assessment No. FAS-5-85-89-002054 requiring petitioner BPI to pay the amount of P28,020.00 as deficiency documentary stamp tax for the taxable year 1985, inclusive of the compromise penalty, is REVERSED and SET ASIDE.  Assessment No. FAS-5-85-89-002054 is hereby ordered CANCELED. 

REPUBLIC V. KER & CO, G.R. NO L-21609 (1966)FACTS: Ker & Co., Ltd., filed its income tax returns for the years 1947, 1948, 1949 and 1950. It amended its income tax returns for 1948 and 1949 on May 11, 1949 and June 30, 1950, respectively.

1. In 1953 the BIR examined and audited Ker & Co., Ltd.'s returns and books of accounts and subsequently issued assessments for deficiency income tax. Due and payable on dates indicated in the notices of assessment. The assessments for 1948 and 1950 carried the surcharge of 50% for the filing of fraudulent returns.

2. Upon request of Ker & Co., Ltd., through its counsel, the BIR reduced the assessments for the year 1947 and for the year 1950, imposed the 50% surcharge for the year 1947 and eliminated the surcharge for the year 1950. The assessments for years 1948 and 1949 remained the same.

3. On March 1, 1956 Ker & Co. filed with the CTA a petition for review with preliminary injunction. The court dismissed the appeal for having been instituted beyond the 30-day period.

4. On March 15, 1962, the BIR demanded payment of the assessments together with a surcharge of 5% for late payment and interest at the rate of 1% monthly.

5. Ker & Co., Ltd. refused to pay, instead it set up the defense of prescription. Subsequently, the Republic of the Philippines filed on March 27, 1962 a complaint with the CFI seeking collection of the deficiency income tax for the years 1947, 1948, 1949 and 1950.

6. The complaint did not allege fraud in the filing of any of the income tax returns for the years involved, nor did it pray for the payment of the corresponding 50% surcharge, but it prayed for the payment of 5% surcharge for late payment and interest of 1% per month without however specifying from what date interest started to accrue.

7. Summons was served not on the defendant taxpayer but upon its counsel in the proceedings before the BIR and the CTA.

8. On April 14, 1962 Ker & Co., Ltd. through its counsel moved for the dismissal of the complaint on the ground that the court did not acquire jurisdiction over the person of the defendant and that plaintiff's cause of action has prescribed.

The issues in this case are:1. Did the Court of First Instance acquire jurisdiction over the

person of defendant Ker & Co., Ltd.? 2. Did the right of the Commissioner of Internal Revenue to

assess deficiency income tax for the year 1947 prescribe? 3. Did the filing of a petition for review by the taxpayer in the

Court of Tax Appeals suspend the running of the statute of limitations to collect the deficiency income for the years 1948, 1949 and 1950?

4. When did the delinquency interest on the deficiency income tax for the years 1948, 1949 and 1950 accrue?

First Issue - Messrs. Leido and Associates acted as counsel for Ker Co., Ltd. when this tax case was in its administrative stage and when it appealed the case to the CTA and later to this Court. Perforce, they were the taxpayer's agent when summons was served.

Second Issue - The stand of the Republic of the Philippines hinges on whether or not the income tax return for 1947 was fraudulent. Said court resolved the issue without touching upon fraudulence of the return. The reason is that the complaint alleged no fraud, nor did the plaintiff present evidence to prove fraud. Fraud is a serious charge and, to be sustained, it must be supported by clear and convincing proof. Accordingly, fraud should have been alleged and proved in the lower court. On these premises we therefore sustain the ruling of the lower court upon the point of prescription.

It would be worth mentioning that since the assessment for deficiency income tax for 1947 has become final and executory, Ker & Co., Ltd. may not anymore raise defenses which go into the merits of the assessment, i.e., prescription of the Commissioner's right to assess the tax. Such was our ruling in previous cases. In this case however, Ker & Co., Ltd. raised the defense of prescription in the proceedings below and the Republic of the Philippines, instead of questioning the right of the defendant to

raise such defense, litigated on it and submitted the issue for resolution of the court. By its actuation, the Republic of the Philippines should be considered to have waived its right to object to the setting up of such defense.

Third Issue -  Did the pendency of the taxpayer's appeal in the Court of Tax Appeals and in the Supreme Court have the effect of legally preventing the Commissioner of Internal Revenue from instituting an action in the Court of First Instance for the collection of the tax? Our view is that it did.

From March 1, 1956 when Ker & Co., Ltd. filed a petition for review in the CTA contesting the legality of the assessments in question, until the termination of its appeal in the Supreme Court, the CIR was prevented, from filing an ordinary action in the CFI to collect the tax. Besides, to do so would be to violate the judicial policy of avoiding multiplicity of suits and the rule on lispendens. 

It would be interesting to note that when the CIR issued the final deficiency assessments on January 5, 1954, he had already lost, by prescription, the right to collect the tax (except that for 1950) by the summary method of warrant of distraint and levy. Ker & Co., Ltd. immediately thereafter requested suspension of the collection of the tax without penalty incident to late payment pending the filing of a memorandum in support of its views. As requested, no tax was collected. On May 22, 1954 the projected memorandum was filed, but as of that date the Commissioner's right to collect by warrant of distraint and levy the deficiency tax for 1950 had already prescribed. So much so, that on March 1, 1956 when Ker & Co., Ltd. filed a petition for review in the CTA, the CIR had but one remedy left to collect the tax, that is, by judicial action. However, as stated, an independent ordinary action in the CFI was not available to the Commissioner in view of the pendency of the taxpayer's petition for review in the CTA.

Precisely he urgently filed a motion to dismiss the taxpayer's petition for review with a view to terminating therein the proceedings in the shortest possible time in order that he could file a collection case in the CFI before his right to do so is cut off by the passage of time. As moved, the Tax Court dismissed the case and Ker & Co., Ltd. appealed to the Supreme Court. By the time the Supreme Court affirmed the order of dismissal of the CTA in L-12396 on January 31, 1962 more than five years had elapsed since the final assessments were made on January 5, 1954. Thereafter,

the CIR demanded extra-judicially the payment of the deficiency tax in question and in reply the taxpayer, by its letter dated March 28, 1962, advised the CIR that the right to collect the tax has prescribed pursuant to Section 332 (c) of the Tax Code.

Thus, did the taxpayer produce the effect of temporarily staying the hands of the Commissioner of Internal Revenue simply through a choice of remedy? And, if We were to sustain the taxpayer's stand, We would be encouraging taxpayers to delay the payment of taxes in the hope of ultimately avoiding the same.

Under the circumstances, the Commissioner of Internal Revenue was in effect prohibited from collecting the tax in question. This being so, the provisions of Section 333 of the Tax Code will apply.

Fourth Issue. Exhibit "F" — the letter of assessment — shows that the deficiency income tax for 1948 and 1949 became due on March 15, 1953 and that for 1950 accrued on February 15, 1954. Since the tax in question remained unpaid, delinquency interest accrued and became due starting from said due dates. The decision appealed from should therefore be modified accordingly

WHEREFORE, the decision appealed from is affirmed with the modification that the delinquency interest at the rate of 1% per month shall be computed from March 15, 1953 for the deficiency income tax for 1948 and 1949 and from February 15, 1954 for the deficiency income tax for 1950. With costs against Ker & Co., Ltd.So ordered.

REPUBLIC V. ACEBEDO, G.R. NO L-20477 (1968)FACTS: This is a suit for collection of deficiency income tax for the year 1948 in the amount of P5,962.83.

1. The corresponding notice of assessment was issued on September 24, 1949.

2. The complaint was filed on December 27, 1961. 3. After the defendant filed his answer but before trial started

he moved to dismiss on the ground of prescription.4. The court received evidence on the motion, and on

September 1, 1962 issued an order finding the same meritorious and hence dismissing the complaint.

5. Plaintiff appealed from the order of dismissal.

ISSUE: WON the right to collect has already prescribed.

HELD: YESThe statute of limitations which governs this case is Section 332, subsection (c), of the National Internal Revenue Code, which provides for an exemption as to the period of limitation thattax may be collected by distraint or levy or by a proceeding in court, but only if begun (1) within five years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Collector of Internal Revenue and the taxpayer before the expiration of such five-year period. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.The present suit was not begun within five years after the assessment of the tax, which was in 1949.Was it, however, begun prior to the expiration of any period for collection agreed upon in writing by the Commissioner of Internal Revenue and the defendant before the expiration of such five-year period? NO.The only evidence of such written agreement, in the form of a "waiver of the statute of limitations" signed by the defendant, dated December 17, 1959. But this waiver was ineffective because it was executed beyond the original five-year limitation.The plaintiff contends that the period of prescription was suspended by the defendant's various requests for reinvestigation or reconsideration of the tax assessment. The trial court rejected this contention, saying that a mere request for reinvestigation or reconsideration of an assessment does not have the effect of such suspension. The ruling is logical, otherwise there would be no point to the legal requirement

that the extension of the original period be agreed upon in writing.There are certain decisions where the taxpayer may be in estoppel to claim prescription as a defense even if he has not previously waived it in writing:IN the case of CIR vs Consolidated Mining the SC ruled that when by his repeated requests or positive acts, the government has been for good reasons, persuaded to postpone collection.Likewise, when a taxpayer asks for a reinvestigation of the tax assessment issued to him and such reinvestigation is made, on the basis of which the Government makes another assessment, the five-year period with which an action for collection may be commenced should be counted from this last assessment.  In the case at bar, the defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation thereof on October 11, 1949. There is no evidence that this request was considered or acted upon. In fact, on October 23, 1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment at (Exh. D), but there was no follow up of this warrant. Consequently, the request for reinvestigation did not suspend the running of the period for filing an action for collection. The next communication of record is a letter signed for the defendant by one Troadio Concha and dated October 6, 1951, again requesting a reinvestigation of his tax liability (Exh. B). Nothing came of this request either. Then on February 9, 1954, the defendant's lawyers wrote the Collector of Internal Revenue informing him that the books of their client were ready at their office for examination (Exh. C). The reply was dated more than a year later, or on October 4, 1955, when the Collector bestirred himself for the first time in connection with the reinvestigation sought, and required that the defendants specify his objections to the assessment and execute "the enclosed forms for waiver, of the statute of limitations." The last part of the letter was a warning that unless the waiver "was accomplished and submitted within 10 days the collection of the deficiency taxes would be enforced by means of the remedies provided for by law." It will be noted that up to October 4, 1955 the delay in collection could not be attributed to the defendant at all. His requests in fact had been unheeded until then, and there was nothing to impede enforcement of the tax liability by any of the means provided by law.

By October 4, 1955, more than five years had elapsed since assessment in question was made, and hence prescription had already set in, making subsequent events in connection with the said assessment entirely immaterial. Even the written waiver of the statute signed by the defendant on December 17, 1959 could no longer revive the right of action, for under the law such waiver must be executed within the original five-year period within which suit could be commenced.

GUAGUA ELECTRIC V. COLLECTOR, 19 SCRA 790 FACTS: Guagua Electric Light Plant Co. ( Guagua Electric), is a grantee of municipal franchise by the municipal council of Guagua, Pampanga and by the municipal council of Sexmoan, Pampanga . It reported a gross income in the sum of P1,133,003.44 during the period from January 1, 1947 to November 1956 and paid thereon a franchise tax of P56,664.97 computed at 5% thereof in accordance with Section 259 of the National Internal Revenue Code.1. Believing that it should pay a lower franchise fee (1-2%) as

provided for in its franchise, it claimed for the refund of allegedly overpaid franchise tax amounting to P35,593.98. The CIR denied the refund corresponding to the period before the 4th quarter of 1951 on the ground that the right to its refund had already prescribed. The CIR granted, however, a refund of P16,593.87 starting for the period of 4 th

quarter of 1951 and thereafter.2. Subsequently, based on the ruling in HoaHin Co., Inc. vs,

David, the franchise tax was set at 5% of gross receipts. Thus, Guagua Electric was assessed a deficiency franchise tax amounting to P41,516.62 for gross receipts from Oct. 1, 1952 to June 30, 1960 plus surcharge.

3. Guagua Electric alleged that the government is precluded from recovering the sum of P16,593.87 representing the amount refunded by the BIR on grounds of prescription and failure to set up as counterclaim.

4. The CIR claimed that prescription will set in only after the expiration of six years from 1957 and 1959, the dates refunds were granted. Since the petition for review and answer thereto were filed in the CTA on Feb 14 and May 4, 1962, the CIR concludes that the prescriptive period of six years has not expired.

ISSUE: WON Guagua Electric should refund the amount of P16.593.87HELD: NO.

1. Where the CIR seeks to recover from the taxpayer an amount which was erroneously refunded to the latter as excess franchise tax, said amount is in effect an assessment for deficiency franchise tax. And being so, the right to assess or collect it, is governed by Sec. 331 of the Tax Code rather than by Art. 1145 of the New Civil Code. A special law (Tax Code) prevails over a general law (New Civil Code0.

2. Deficiency franchise taxes for the period prior to January 1, 1956 cannot be assessed and collected in March 1961 inasmuch as the five year prescriptive period for assessing and collecting the same had already expired.

3. Where the taxpayer acted in good faith in paying the franchise tax, it is patently unfair on the part of the Government to require him to pay 25% surcharge on the amount correctly due.

Wherefore, the judgment appealed from is affirmed with the modification that the amount of P16,593.87 representing franchise tax allegedly refunded erroneously and the 25% surcharge imposed on petitioner should be, and are eliminated, thereby reducing the tax from a total of P41,516.52 to P19,938.12. No costs. So ordered.

CIR V. WYETH SUACO LABORATORIES & CTA, G.R. 202 SCRA 125 (1991)DOCTRINE: Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment, and starts to run again when said request is denied (CIR vs. Capitol Subdivision, Inc).

Partial payment would not prevent the government from suing the taxpayer. Because, by such act of payment, the government is not thereby "persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant." This is the underlying reason behind the rule that the prescriptive period is arrested by the taxpayer's request for re-examination or reinvestigation - even if he "has not previously waived it (prescription in writing)".

FACTS: Wyeth Suaco Laboratories, Inc. is engaged in the manufacture and sale of assorted pharmaceutical and nutritional products. Its accounting period is on a fiscal year basis ending October 31 of every year.

1. By virtue of Letter of Authority (June 17, 1974) the Revenue Examiner (Kabigting) conducted an investigation and examination of the books of accounts of Wyeth Suaco.

2. October 15, 1974, the report disclosed that Wyeth Suaco was paying royalties to its foreign licensors as well as remuneration for technical services to Wyeth International London. Wyeth Suaco was also found to have declared cash dividends (September 27, 1973) and these were paid on October 31, 1973. However, it failed to remit withholding tax at source for the 4th quarter of 1973 on accrued royalties, remuneration for technical services and cash dividends, resulting in a deficiency withholding

tax at source in the aggregate amount of P3,178,994.15.

a. that from November 1, 1972 - December 31, 1972 and January 1, 1973 - October 31, 1973, Wyeth Suaco deducted the cost of non-deductible raw materials, resulting in its alleged failure to pay the correct amount of advance sales tax.

3. Thus, BIR assessed Wyeth Suaco on the aforesaid tax liabilities in (2) notices dated December 16, 1974 and DECEMBER 17, 1974. These assessment notices were both received by Wyeth Suaco on December 19, 1974.

4. Wyeth Suaco through its tax consultant SGV &Co., sent the BIR (2) letters dated January 17, 1975 and February 8, 1975, protesting the assessments and requesting their cancellation or withdrawal on the ground that said assessments lacked factual or legal basis.

5. Wyeth Suaco argued that it was not liable to pay withholding tax at source on the accrued royalties and dividends because they have yet to be remitted or paid abroad. It claimed that it was not able to remit the balance of (50%) of the accrued royalties to its foreign licensors because of CB Circular No. 289 allowing remittance of royalties up to fifty (50%) only.

6. September 12, 1975, CIR asked Wyeth Suaco to avail itself of the compromise settlement. Wyeth manifested its conformity to a 10% compromiseprovided it be applied only to the basic sales tax, excluding surcharge and interest. Wyeth also took exception as to the deficiency withholding tax at source, on the ground that it involves purely a legal question and some of the amounts included in the assessment have already been paid.

7. December 10, 1979, CIR through acting Commissioner Ancheta, reduced the assessment of the withholding tax at source for 1973 to P1,973,112.86. The deficiency sales tax remained the same.

8. January 18, 1980, Wyeth Suaco filed a petition for review in CTA, praying that petitioner be enjoined from enforcing

the assessments by reason of prescription and that the assessments be declared null and void for lack of legal and factual basis.

9. February 7, 1980, petitioner issued a warrant of distraint of personal property and warrant of levy of real property again private respondent to enforce collection of the deficiency taxes. These were SERVED on private respondent on MARCH 12, 1980.

a. May 22, 1980, collection of the deficiency taxes by virtue of warrants of distraint and levy was enjoined.

10. August 29, 1986, CTA enjoined the CIR from collecting the deficiency taxes. It found that while the assessments for the deficiency taxes were made within the 5-year period of limitation, the right of petitioner to collect the same has already prescribed in accordance with Section 319 (c) of the Tax Code of 1977: that an assessment of any internal revenue tax within the five-year period of limitation may be collected by distraint or levy or by a proceeding in court, BUT ONLY IF begun within five (5) years after the assessment of the tax. Hence, this petition.

11. Petitioner contends that the 5-year prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court has not yet prescribed. Although he admits that more than (5) years have already lapsed from the time the assessment notices were received by private respondent on DECEMBER 19, 1974 up to the time the warrants of distraint and levy were served on MARCH 12, 1980, he avers that the running of the prescriptive period was stayed or interrupted when Wyeth Suaco protested the assessments. That the protest letters sent by SGV & Co. in behalf of Wyeth Suaco requesting for withdrawal and cancellation of the assessments were actually requests for reinvestigation or reconsideration, which could interrupt the running of the five-year prescriptive period.

12. Wyeth Suaco maintains the position that it never asked for a reinvestigation nor reconsideration of the assessments. What it requested was the cancellation

and withdrawal of the assessments for lack of legal and factual basis. Thus, its protest letters did not suspend or interrupt the running of the 5-year prescriptive period.

ISSUE: Did Wyeth Suaco sought reinvestigation or reconsideration of the deficiency tax assessments interrupting the prescriptive period? YES.

HELD: The applicable laws in the instant case are Sections 318 and 319 (c) of the NIRC of 1977 (now Sections 203 and 224 of the NIRC of 1986).

Wyeth Suaco admitted that it was seeking reconsideration of the tax assessments as shown in a letter of James A. Gump, its President and General Manager (April 28, 1975): the relevant portion of which is quoted hereunder:

We submit this letter as a follow-up to our protest filed with your office, through our tax advisers, Sycip, Gorres, Velayo & Co., on January 20 and February 10, 1975 regarding alleged deficiency on withholding tax at source of P3,178,994.15 and on percentage tax of P60,855.21, including interest and surcharges, on which we are seeking reconsideration.

Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically state or use the words "reinvestigation" and "reconsideration," the same are to be treated as letters of reinvestigation and reconsideration. By virtue of these letters, BIR ordered its Manufacturing Audit Division to review the assessment made. Furthermore, private respondent's claim that it did not seek reinvestigation or reconsideration of the assessments is belied by the subsequent correspondence or letters written by its officers.

These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the deficiency taxes. The final assessment issued (December 10, 1979) and received by private respondent (January 2, 1980), fixed its tax liability at P1,973,112.86 as deficiency withholding tax at source and P61,155.21 as deficiency sales tax. It was only upon receipt by Wyeth Suaco of this final assessment that the five-year prescriptive period started to run again.

Verily, the original assessments (December 16 and 17, 1974) received by Wyeth Suaco on December 19, 1974. However, when Wyeth Suaco protested the assessments and sought its reconsideration the prescriptive period was interrupted. This period started to run again when the BIR served the final assessment to Wyeth Suaco on January 2, 1980. Since the warrants of distraint and levy were served on Wyeth Suaco on March 12, 1980, then, only about four (4) months of the five-year prescriptive period was used.

RE MERITS OF THE CASE:

Wyeth Suaco maintains the stand that withholding tax at source should only be remitted to the BIR once the incomes subject to withholding tax at source have actually been paid. Thus, private respondent avers that it was not liable to remit the taxes withheld at source on royalties and dividends unless these incomes have been actually paid to its foreign licensors and stockholders.

The Tax Code, particularly Section 54 (a) [now Section 51 (a)] provides that "the Commissioner of Internal Revenue may, with the approval of the Secretary of Finance, require the withholding agents to pay or deposit the taxes deducted and withheld at more frequent intervals when necessary to protect the interest of the government. The return shall be filed and the payment made within 25 days from the close of each calendar quarter". Revenue Regulation No. 6-85 (July 1, 1985), requires the filing of monthly return and payment of taxes withheld at source within (10) days after the end of each month.

Wyeth Suaco adopted the accrual method of accounting wherein the effect of transactions and other events on assets and liabilities are recognized and reported in the time periods to which they relate rather than only when cash is received or paid. The "Report of Investigation" submitted by the tax examiner indicated that accrual was the basis of the taxpayer's return. Thus, private respondent recorded accrued royalties and dividends payable as well as the withholding tax at source payable on these incomes. Having deducted and withheld the tax at source and having recorded the withholding tax at source payable in its books of accounts, private respondent was obligated to remit the same to the BIR.

RE ACCURACY OF THE ASSESSMENT ON DEFICIENCY SALES TAX. The examiner's assessment should be given full weight and credit, in the absence of proof submitted by Wyeth Suaco to the contrary. Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise.

WHEREFORE, the petition is GRANTED. Wyeth Suaco Laboratories, Inc, is ordered to pay the BIR the amount of P1,973,112.86 as deficiency withholding tax at source, with interest and surcharge in accordance with law, without prejudice to any reduction brought about by payments or remittance made.

CIR V. UNION SHIPPING CORP, 185 SCRA 547FACTS: In a letter dated December 27, 1974, herein petitioner Commissioner of Internal Revenue assessed against Yee Fong Hong, Ltd and/or herein private respondent Union Shipping Corporation, the total sum of P583,155.22 as deficiency income

taxes due for the years 1971 and 1972. On January 13, 1975, private respondent protested the assessment.

1. Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy, which was served on private respondent’s counsel, Clemente Celso, on November 25, 1976.

2. In a letter dated November 27, 1976, received by petitioner on November 29, 1976, private respondent reiterated its request for reinvestigation of the assessment and for the reconsideration of the summary collection thru the Warrant of Distraint and Levy.

3. Petitioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant of Distraint and Levy, filed a collection suit against private respondent. Summons in the said collection case was issued to private respondent on December 28, 1978.

4. On January 10, 1979, private respondent filed with respondent court its Petition for Review of the petitioner’s assessment of its deficiency income taxes in a letter dated December 27, 1974, docketed therein as CTA Case No. 2989wherein it prays that it is not liable for the payment of the income tax herein involved, or which may be due from foreign shipowner Yee Fong Hong, Ltd.; to which petitioner filed his answer on March 29, 1979.

5. Respondent Tax Court, in a decision dated December 9, 1983, ruled in favor of private respondent –“Wherefore, the decision of the Commissioner of Internal Revenue appealed from, assessing against and demanding from petitioner the payment of deficiency income tax, inclusive of 50% surcharge, interest and compromise penalties, in the amounts of P73,958.76 and P583,155.22 for the years 1971 and 1972, respectively, is reversed.”

ISSUE: WON a) the Court of Tax Appeals has jurisdiction over this case, and b) Union Shipping Corporation acting as a mere “ husbanding agent” of Yee Fong Hong Ltd., is liable for payment of taxes on the gross receipts or earnings of the latter.

RULINGS:

1. The main thrust of this petition is that the issuance of a warrant of distraint and levy is proof of the finality of an assessment because it is the most drastic action of all media of enforcing the collection of tax, and is tantamount

to an outright denial of a motion for reconsideration of an assessment. Among others, petitioner contends that the warrant of distraint and levy was issued after respondent corporation filed a request for reconsideration of subject assessment, thus constituting petitioner’s final decision in the disputed assessment.

2. Petitioner argues therefore that the period to appeal to the Court of Tax Appeals commenced to run from receipt of said warrant on November 25, 1976, so that on January 10, 1979 when respondent corporation sought redress from the Court, petitioner’s decision has long become final and executory.

3. On this issue, the Court had already laid down the dictum that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment.

4. There appears to be no dispute that petitioner did not rule on private respondent’s motion for reconsideration but contrary to the above ruling of this Court, left private respondent in the dark as to which action of the Commissioner is the decision appealable to the Court of Tax Appeals. Had he categorically stated that that he denies private respondent’s motion for reconsideration and that his action constitutes his final determination on the disputed assessment, private respondent without needless difficulty would have been able to determine when his right to appeal accrues and the resulting confusion would have been avoided.

5. Much later, this Court reiterated the above-mentioned dictum in a ruling applicable on all fours to the issue in the case at bar, that the reviewable decision of the Bureau of Internal Revenue is that contained in the letter of its Commissioner, that such constitutes the final decision on the matter which may be appealed to the Court of Tax Appeals and not the warrants of distraint. It was likewise stressed that the procedure enunciated is demanded by the pressing need for fair play, regularity and orderliness in administrative action.

6. Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his final action on the disputed assessment, legally the period to appeal has not commenced to run. Thus, it was only when the private respondent received the summons on the civil suit for

collection of deficiency income on December 28, 1978 that the period to appeal commenced to run.

7. The request for reinvestigation and reconsideration was in effect considered denied by petitioner when the latter filed a civil suit for collection of deficiency income. So, that on January 10, 1979 when private respondent filed the appeal with the Court of Tax Appeals, it consumed a total of only thirteen (13) days well within the thirty day period to appeal pursuant to Section 11 of R.A. 1125.

EMILIO S. LIM V. CA, 190 SCTA 616

BPI (FEBTC) V. CIR, G.R. NO 17492 (2008)FACTS: The CIR thru the Revenue Service Chief issued to BPI a pre-assessment notice dated November 26, 1986.

1. BPI requested for the details of the amounts alleged as 1982-1986 deficiency taxes mentioned in the November 26, 1986 PAN.

2. On April 7, 1989, respondent issued to the petitioner, assessment/demand notices for deficiency withholding tax at source (Swap Transactions) and DST for the years 1982 to 1986.

3. On April 20, 1989, petitioner filed a protest on the demand/assessment notices. On May 8, 1989, petitioner filed a supplemental protest.

4. On March 12, 1993, petitioner requested for an opportunity to present or submit additional documentation on the Swap Transactions with the Central Bank. Attached to the letter dated June 17, 1994, in connection with the reinvestigation of the assessment, petitioner submitted to the BIR, Swap Contracts with the Central Bank.

5. Petitioner executed several Waivers of the Statutes of Limitations, the last of which was effective until December 31, 1994.

6. On August 9, 2002, respondent issued a final decision on petitioner’s protest ordering the withdrawal and cancellation of the deficiency withholding tax assessment and considered the same as closed and terminated.

7. On the other hand, the deficiency DST assessment was reiterated and the petitioner was ordered to pay the said amount within 30 days from receipt of such order.

8. The tax court, ruled that BPI’s protest and supplemental protest should be considered requests for reinvestigation which tolled the prescriptive period to collect a tax deficiency by distraint, levy, or court proceeding.

9. In its Petition for Review dated 24 November 2006, BPI argues that the government’s right to collect the DST had already prescribed because the CIR failed to issue any reply granting BPI’s request for reinvestigation manifested in the protest letters dated 20 April and 8 May 1989.

10. It was only through the 9 August 2002 Decision ordering BPI to pay deficiency DST, or after the lapse of more than 13 years that the CIR acted on the request for reinvestigation, warranting the conclusion that prescription had already set in.

11. The OSG filed a Commenton behalf of the CIR, asserting that the prescriptive period was tolled by the protest letters filed by BPI which were granted and acted upon by the CIR. Such action was allegedly communicated to BPI as, in fact, the latter submitted additional documents pertaining to its SWAP transactions in support of its request for reinvestigation.

12. Thus, it was only upon BPI’s receipt on 13 January 2003 of the 9 August 2002 Decision that the period to collect commenced to run again.

ISSUE: WON the collection of the deficiency DST is barred by prescription and whether BPI is liable for DST on its SWAP loan transactions.

HELD: We grant the petition.The statute of limitations on assessment and collection of national internal revenue taxes was shortened from 5 years to 3 years by Batas PambansaBlg. 700. Thus, the CIR has 3 years from the date of actual filing of the tax return to assess a national internal

revenue tax or to commence court proceedings for the collection thereof without an assessment.

When it validly issues an assessment within the 3-year period, it has another 3 years within which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax is deemed made and the 3-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer.

As applied to the present case, the CIR had 3 years from the time he issued assessment notices to BPI on 7 April 1989 or until 6 April 1992 within which to collect the deficiency DST. However, it was only on 9 August 2002 that the CIR ordered BPI to pay the deficiency.

In order to determine whether the prescriptive period for collecting the tax deficiency was effectively tolled by BPI’s filing of the protest letters dated 20 April and 8 May 1989 as claimed by the CIR, Section 320 is plainly worded. In order to suspend the running of the prescriptive periods for assessment and collection, the request for reinvestigation must be granted by the CIR. The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension.

The Court went on to declare that the burden of proof that the request for reinvestigation had been actually granted shall be on the CIR. Such grant may be expressed in its communications with the taxpayer or implied from the action of the CIR or his authorized representative in response to the request for reinvestigation.

There is nothing in the records of this case which indicates, expressly or impliedly, that the CIR had granted the request for reinvestigation filed by BPI. What is reflected in the records is the piercing silence and inaction of the CIR on the request for reinvestigation, as he considered BPI’s letters of protest to be.Neither did the waiver of the statute of limitations signed by BPI supposedly effective until 31 December 1994 suspend the prescriptive period. The CIR himself contends that the waiver is void as it shows no date of acceptance in violation of RMO No. 20-90. At any rate, the records of this case do not disclose any effort on the part of the BIR to collect the deficiency tax after the

expiration of the waiver until 8 years thereafter when it finally issued a decision on the protest.

The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter’s real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law.Given the prescription of the government’s claim, we no longer deem it necessary to pass upon the validity of the assessment.

CIR V. PHILIPPINE GLOBAL COMMUNICATION INC, G.R. NO 167146 (2006)FACTS: Respondent, a corporation engaged in telecommunications, filed its Annual Income Tax Return for taxable year 1990 on 15 April 1991. 

1. On 13 April 1992, the Commissioner of Internal Revenue (CIR) issued Letter of Authority No. 0002307, authorizing the appropriate Bureau of Internal Revenue (BIR) officials to examine the books of account and other accounting records of respondent, in connection with the investigation of respondent’s 1990 income tax liability. 

2. On 22 April 1992, the BIR sent a letter to respondent requesting the latter to present for examination certain records and documents, but respondent failed to present any document. 

3. On 21 April 1994, respondent received a Preliminary Assessment Notice dated 13 April 1994 for deficiency income tax in the amount of P118,271,672.00.

4. On the following day, 22 April 1994, respondent received a Formal Assessment Notice with Assessment Notice No. 000688-80-7333, dated 14 April 1994, for deficiency income tax in the total amount of P118,271,672.00.

5. On 6 May 1994, respondent, through its counsel filed a formal protest letter against Assessment Notice No. 000688-80-7333. Respondent filed another protest letter on 23 May 1994, through another counsel. 

6. In both letters, respondent requested for the cancellation of the tax assessment, which they alleged was invalid for lack of factual and legal basis.

7. On 16 October 2002, more than eight years after the assessment was presumably issued, the Ponce Enrile Cayetano Reyes and Manalastas Law Offices received from the CIR a Final Decision dated 8 October 2002 denying the respondent’s protest against Assessment Notice No.

000688-80-7333, and affirming the said assessment in toto.

8. Respondents filed a petition for review with the CTA. CTA ruled on the primary issue of prescription.  It decided that the protest letters filed by the respondent cannot constitute a request for reinvestigation, hence, they cannot toll the running of the prescriptive period to collect the assessed deficiency income tax.7 Thus, since more than three years had lapsed from the time Assessment Notice No. 000688-80-7333 was issued in 1994, the CIR’s right to collect the same has prescribed.

ISSUE: WON the CIR’s right to collect the tax under said Assessment notice has prescribed.

HELD: YESSec. 269 provides for the exceptions as to the period of limitation where, Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax.The law prescribed a period of three years from the date the return was actually filed or from the last date prescribed by law for the filing of such return, whichever came later, within which the BIR may assess a national internal revenue tax.13 However, the law increased the prescriptive period to assess or to begin a court proceeding for the collection without an assessment to ten years when a false or fraudulent return was filed with the intent of evading the tax or when no return was filed at all.14 In such cases, the ten-year period began to run only from the date of discovery by the BIR of the falsity, fraud or omission.If the BIR issued this assessment within the three-year period or the ten-year period, whichever was applicable, the law provided another three years after the assessment for the collection of the tax due thereon through the administrative process of distraint and/or levy or through judicial proceedings.15 The three-year period for collection of the assessed tax began to run on the date the assessment notice had been released, mailed or sent by the BIR.The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the CIR’s claim. Therefore, the BIR had until 13 April 1997. However, as there was no Warrant of Distraint and/or Levy served on the respondents nor any judicial proceedings initiated by the BIR, the

earliest attempt of the BIR to collect the tax due based on this assessment was when it filed its Answer in CTA Case No. 6568 on 9 January 2003, which was several years beyond the three-year prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax.In a number of cases, this Court has also clarified that the statute of limitations on the collection of taxes should benefit both the Government and the taxpayers.

Thus, in Commissioner of Internal Revenue v. B.F. Goodrich,21 this Court affirmed that the law on prescription should be liberally construed in order to protect taxpayers and that, as a corollary, the exceptions to the law on prescription should be strictly construed.

The Tax Code of 1977, as amended, provides instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver, when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected x xx. (Emphasis supplied.)Among the exceptions provided by the aforecited section, and invoked by the CIR as a ground for this petition, is the instance when the taxpayer requests for a reinvestigation which is granted by the Commissioner. However, this exception does not apply to this case since the respondent never requested for a reinvestigation. More importantly, the CIR could not have conducted a reinvestigation where, as admitted by the CIR in its Petition, the respondent refused to submit any new evidence.

Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests of Assessment of the Bureau of Internal Revenue, issued on 27 November 1985, defines the two types of protest, the request for reconsideration and the request for reinvestigation, and distinguishes one from the other in this manner:

Section 6.Protest. - The taxpayer may protest administratively an assessment by filing a written request for reconsideration or reinvestigation specifying the following particulars:xxxFor the purpose of protest herein—

(a) Request for reconsideration-- refers to a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both.(b) Request for reinvestigation—refers to a plea for re-evaluation of an assessment on the basis of newly-discovered evidence or additional evidence that a taxpayer intends to present in the investigation. It may also involve a question of fact or law or both.The main difference between these two types of protests lies in the records or evidence to be examined by internal revenue officers, whether these are existing records or newly discovered or additional evidence. A re-evaluation of existing records which results from a request for reconsideration does not toll the running of the prescription period for the collection of an assessed tax. Section 271 distinctly limits the suspension of the running of the statute of limitations to instances when reinvestigation is requested by a taxpayer and is granted by the CIR.

The Court provided a clear-cut rationale in the case of Bank of the Philippine Islands v. Commissioner of Internal Revenue explaining why a request for reinvestigation, and not a request for reconsideration, interrupts the running of the statute of limitations on the collection of the assessed tax:

Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter cannot.

In the present case, the separate letters of protest dated 6 May 1994 and 23 May 1994 are requests for reconsideration. The CIR’s allegation that there was a request for reinvestigation is inconceivable since respondent consistently and categorically refused to submit new evidence and cooperate in any reinvestigation proceedings. 

The distinction between a request for reconsideration and a request for reinvestigation is significant. It bears repetition that a request for reconsideration, unlike a request for reinvestigation, cannot suspend the statute of limitations on the collection of an assessed tax. If both types of protest can

effectively interrupt the running of the statute of limitations, an erroneous assessment may never prescribe. If the taxpayer fails to file a protest, then the erroneous assessment would become final and unappealable. On the other hand, if the taxpayer does file the protest on a patently erroneous assessment, the statute of limitations would automatically be suspended and the tax thereon may be collected long after it was assessed. Meanwhile the interest on the deficiencies and the surcharges continue to accumulate. And for an unrestricted number of years, the taxpayers remain uncertain and are burdened with the costs of preserving their books and records. This is the predicament that the law on the statute of limitations seeks to prevent.

In the present case the respondent did nothing to prevent the BIR from collecting the tax. It did not present to the BIR any new evidence for its re-evaluation. At the earliest opportunity, respondent insisted that the assessment was invalid and made clear to the BIR its refusal to produce documents that the BIR requested. On the other hand, the BIR also communicated to the respondent its unwavering stance that its assessment is correct. Given that both parties were at a deadlock, the next logical step would have been for the BIR to issue a Decision denying the respondent’s protest and to initiate proceedings for the collection of the assessed tax and, thus, allow the respondent, should it so choose, to contest the assessment before the CTA. Postponing the collection for eight long years could not possibly make the taxpayer feel that the demand was not unreasonable or that no harassment or injustice is meant by the Government. 

Thus, the three-year statute of limitations on the collection of an assessed tax provided under Section 269(c) of the Tax Code of 1977, a law enacted to protect the interests of the taxpayer, must be given effect. In providing for exceptions to such rule in Section 271, the law strictly limits the suspension of the running of the prescription period to, among other instances, protests wherein the taxpayer requests for a reinvestigation. In this case, where the taxpayer merely filed two protest letters requesting for a reconsideration, and where the BIR could not have conducted a reinvestigation because no new or additional evidence was submitted, the running of statute of limitations cannot be interrupted. The tax which is the subject of the Decision issued by the CIR on 8 October 2002 affirming the Formal Assessment issued on 14 April 1994

can no longer be the subject of any proceeding for its collection. Consequently, the right of the government to collect the alleged deficiency tax is barred by prescription.